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PBS explains robo-signing foreclosure mess

2000 & 2008

Sledge - In what post do you even find the remotest hints that I think any executive justly earned, or should be allowed to keep, their ill-gotten booty?

Not just do I think it should be stuck to the executives of Countrywide and every bank that created these instruments, I think the mortgage brokers, minor bankers, etc. should all be held to account. I would also include the ratings agencies and investment bankers who facilitated the whole system. Even when no one individual committed an actual crime, the web created ended up with what amounted to criminal activity on the part of many, just so dispersed that no one person could be held to blame. And they got rich by likewise spreading the loot amongst so many as well.

Finance - I see your point though have not done enough to research how universally valid it is. In a non-recourse state that would mean things will be a f---ing mess for a long time, and rates will be commensurately higher in the future to protect against imperfect liens. Particularly since it is a homestead state (for those who don't know, in FL someone can't go after your home in a bankruptcy, while in a state like NY they can though you can exempt a small amount of the proceeds if they do).

You have to ask yourself, how can we have a mortgage and foreclosure crises built partly on fraud and not a single executive get charged with anything.

Because Scary Barry and Rocket Roger are still on the loose.

River - In fairness to Attorney Generals everywhere I would have to say that this would be a particularly hard case not just to to make but even to get the indictment. That doesn't mean these people aren't complete scum.

What should have been done was restructure the TBTF banks, tossing out the executives, wiping out the shareholders, guaranteeing the depositors and recouping as much as possible for the bondholders. Then break them up into smaller pieces. Then go after the executives and their wives in civil court for as much as possible. No deals for the big guys. And only for small fry if you need to build a case.

I agree with much, except I would have recapitalized the banks by forcing the bond holders to exchange for equity. Also allowing Goldman,G.E. and hedge funds to become banks and gain access to fed windows , programs is corporatocacy at its worst.

Somewhat fascinating story on this on 60 minutes last night. Talk about fraud. You can find the story clip online. wonder if the picked the name Green for a joke as in green meaning money. It was so digusting I could barely watch it and at the same time couldn't take my eyes off the tv. Talk about BS

"Banks To Get Away Scott-Free Again? Mass Fraudclosure Settlement To Be Announced Today Without Financial Penalties"

"As we noted earlier, JPM recorded $650 million in costs to "foreclosure-related matters" read legal costs associated with Robosigning (and if JPM is over half a billion, BofA legal invoices are certainly in 9 digit territory by now). Obviously, this is a situation that has to be resolved as USSA kleptocracy can not be forced to pay for prior (and ongoing) transgressions. Which is why we were not surprised to learn that "Bank regulators plan to announce settlements later on Wednesday with the largest lenders over allegations of shoddy foreclosure practices, but the pacts will not include financial penalties." "

Utter and complete BS.

First, I called this weeks ago.

The system simply accepts the fact that banks can commit all sorts of fraud and employ misleading practices at all of the levels of their business.

This country's economy is firmly based on companies ignoring rules, committing fraud and ripping off consumers.

Banks can go in front of judges - openly lie and deceive them - and not only not be charged, but essentially be told that they most likely will get away with it in the future as well.

Our leadership at all levels (and parties) are gutless cowards that refuse to do anything to reign in the illegal activities of the financial industry; in fact, they are making them legal in a de facto fashion.

The fact is that if they REALLY wanted to enforce the law it would shut down most banks involved in the housing mkt (and probably many others). Instead of cleaning house, they are now looking to brush all of this under the rug.

I would love to use this as a precedent in front of a judge in a case where I was accused of committing some sort of similar fraud. He/She wouldn't even listen to me....

This is a perfect example of how the individual and the law mean nothing when confronted with the arrogant needs of large corporations.

The FBI defines mortgage fraud as "any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan."

This definition cannot be an accident, it was done based on industry involvement. And it makes it far more likely that a borrower get convicted than any banker.

I still don't understand how the Supreme Court somehow allowed corporations to spend unlimited amounts on lobbying and political campaigns, given it is clear that corporations (and the people who run/work for them) are free from any sort of serious enforcement of laws.

This sort of "enforcement action" is an open attack on the rule of law in this country. It is an undemocratic authoritarian decision that robs the individual of legal protection and turns a blind eye to corporate illegal actions. Specifically, it turns hundreds of years of property law upside down as it is more than clear that banks DON'T need the title or proof of ownership to foreclose on your house.

This is absolutely disturbing and disgusting.

There's no difference between a corporation spending unlimited amounts and a union or union umbrella organization spending unlimited amounts. At first I agreed with you,Memito. But after reading the decision I think the Supreme court did right.

Screw the unions too. They shouldn't be allowed to spend unlimited amounts either.

The big problem is that we are assigning individual rights to businesses but in reality they are shielded from any real consequences of bad behavior.

Meanwhile, individuals (most, at least), have to be weary of violating the law.

For example, a chemical company can contaminate a waterway in order to save money - they (the shareholders, that is) may pay a fine - and maybe internally someone might get fired - but NO ONE goes to jail.

If an individual is caught dumping chemicals into the very same river, they will pay a fine and spend time in jail for their actions.

What is disturbing is that businesses can spend as much as they want to lobby the law-making process so legislation is written in ways that absolve them of any real responsibility (as you mentioned).

What is the point of allowing entities that aren't held responsible under the law the right to actually influence the law?

Laws should be written by those that they govern, not by those they do not.

The Federal Reserve Board on Wednesday announced formal enforcement actions requiring 10 banking organizations to address a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing. These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions.

This is a key point, our legal authorities have no means other than voluntary cooperation in getting key documents necessary for prosecution. The regulators simply don't cooperate.

As nonprosecutions go, perhaps none is more puzzling to legal experts than the case of Countrywide, the nation’s largest mortgage lender. Last month, the office of the United States attorney for Los Angeles dropped its investigation of Mr. Mozilo after the S.E.C. extracted a settlement from him in a civil fraud case. Mr. Mozilo paid $22.5 million in penalties, without admitting or denying the accusations.

All of these enforcement agencies traditionally depend heavily on referrals from bank regulators, who are more savvy on complex financial matters.

But data supplied by the Justice Department and compiled by a group at Syracuse University show that over the last decade, regulators have referred substantially fewer cases to criminal investigators than previously.

White-collar crime lawyers contend that Countrywide exemplifies the difficulties of mounting a criminal case without assistance and documentation from regulators — the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Fed, in Countrywide’s case.

“When regulators don’t believe in regulation and don’t get what is going on at the companies they oversee, there can be no major white-collar crime prosecutions,” said Henry N. Pontell, professor of criminology, law and society in the School of Social Ecology at the University of California, Irvine. “If they don’t understand what we call collective embezzlement, where people are literally looting their own firms, then it’s impossible to bring cases.”

The thrift supervisor, however, has not referred a single case to the Justice Department since 2000, the Syracuse data show. The Office of the Comptroller of the Currency, a unit of the Treasury Department, has referred only three in the last decade.

The F.B.I. had expressed concerns about mortgage improprieties as early as 2004. But it was not until four years later that its officials recommended closing several investigative programs to free agents for financial fraud cases, according to two people briefed on a study by the bureau.

The study identified about two dozen regions where mortgage fraud was believed rampant, and the bureau’s criminal division created a plan to investigate major banks and lenders. Robert S. Mueller III, the director of the F.B.I., approved the plan, which was described in a memo sent in spring 2008 to the bureau’s field offices.

“We were focused on the whole gamut: the individuals, the mortgage brokers and the top of the industry,” said Kenneth W. Kaiser, the former assistant director of the criminal investigations unit. “We were looking at the corporate level.”

Days after the memo was sent, however, prosecutors at some Justice Department offices began to complain that shifting agents to mortgage cases would hurt other investigations, he recalled. “We got told by the D.O.J. not to shift those resources,” he said. About a week later, he said, he was told to send another memo undoing many of the changes. Some of the extra agents were not deployed.

The $2 billion battle has begun.

When the Suffolk County Legislature meets again next week, the county's share of an estimated $2 billion in fees big banks saved with their electronic record-keeping system -- bypassing paper mortgage records in county clerks' offices -- will top the agenda for legislator Ed Romaine.

In his previous job as county clerk, Romaine fought in court against the Mortgage Electronic Registration System, or MERS, for several years in the early 2000s and lost. But he's taking another run at it now as the firm's shaky legal foundation is cracking and so many ordinary homeowners are suffering from questionable foreclosure actions involving MERS.

"We lost revenues, and they've acted wrongly," said Romaine, who estimates MERS has drained more than $100 million that rightfully belongs to his cash-strapped county. "Filing paper assignments prevented some of the abuses."

In New York State, MERS has $252 billion in home mortgages, or about 1.3 million loans, based on estimates from Inside Mortgage Finance provided to The Post.

"We fought it because we didn't want to lose the fees for our county, and we felt there was a [value to having] a hall of public records," Romaine said. "I fought this, never thinking how banks would bundle mortgages, securitize them and break them up so [now] it's almost impossible in foreclosure to get the underlying documents. They've created a disaster which was a prelude to the housing collapse."

Read more:

The IRS confirmed to Reuters that the review comes in response to mounting evidence that banks violated tax requirements by mishandling the transfer of mortgages to REMICs, short for Real Estate Mortgage Conduits.

Should the IRS find reason to take tough action, the financial impact could be enormous. REMIC investments are held by pension funds, in individual retirement plans such as 401(k)s and by state and local government entities.

As of the end of 2010, investments in REMICs totaled more than $3 trillion, according to data supplied by the Securities Industry and Financial Markets Association.

In a brief statement in response to questions from Reuters, the agency said: "The IRS is aware of questions in the market regarding REMICs and proper ownership of the underlying mortgages as set out in federal tax law, and is actively reviewing certain aspects of this issue."

The statement said the IRS would not make any further comment. An IRS spokesman declined to say anything about the extent of the review, or whether the agency is likely to take action.

The review, however, is a sign that the widespread bank misdeeds in home foreclosure cases are spilling over to threaten the interests of investors in mortgage-backed securities. The banks originated the mortgages and packaged them into securities.

These banks' transgressions, confirmed in court decisions and through recent action by federal bank regulators, include the failure to formally transfer ownership of mortgages to the trusts that invested in them and the subsequent creation of fraudulent mortgage assignments and other false documents.

These investment trusts already have suffered big drops in income because of vast numbers of mortgage defaults after the housing boom collapse. They have been hurt too because in an increasing number of instances they have been blocked by courts from foreclosing on defaulted mortgages. The courts ruled that because the trusts never received the required documents establishing that they owned the mortgages, they have no standing to foreclose.


For investors, one of the big attractions of REMICs has been that they aren't "double-taxed." While individual investors pay taxes on income they receive from REMICs, the securities themselves are exempt from business income tax.

But if the IRS concludes that the REMIC investments failed to comply with strict requirements in the federal tax code, the REMIC would have to pay a 100 percent tax on the income from those investments.

That means that the IRS could confiscate the full amount. Tax law experts said the REMICs also could be subjected to additional penalties for failing to file tax returns on the income.

James Peaslee, a partner at law firm Cleary Gottlieb who is an expert on taxation of securitized investments, said that even if the IRS finds wrongdoing, it might be loath to act because of the wide financial damage the penalties would cause. He notes that the REMIC investors, who he called "innocent parties," would have to pay rather than the banks that were responsible for any wrongdoing in transferring mortgage ownership.

But Adam Levitin, a Georgetown University Law School professor and expert on taxation, said that if the IRS fails to act, "it would be a backdoor bailout of the financial system."

If the IRS did impose penalties, the REMICs could turn around and sue the banks for causing the problems and not living up to the terms of the agreements establishing each REMIC, thus transferring the costs to the banks. If the IRS finds wrongdoing but fails to act, the IRS would forego "potentially enormous tax revenue that would be passed on to the federal government," Levitin said. "Given the federal budget deficit that's not something to sniff at," he added.

At least for some REMICs, though, prospects for suing the banks may be limited. April Charney, a Florida legal aid attorney and leading expert on mortgage backed securities and foreclosures, said that the agreements establishing the REMICs specify strict time limits for investors to sue the banks for any deficiencies in turning over promised mortgages.

For the IRS, one of the main issues will be whether REMICs actually owned the mortgages from which they received income. If not, for tax purposes they wouldn't qualify as REMICs, and the income would become taxable.

The arcane tax rules governing REMICs tax rules require that all mortgages be transferred to them on the dates that they are formed. There is a 120-day grace period for correcting any errors, and after that the rules strictly forbid acquiring any additional mortgages. Levitin said the reason for this limitation is that REMICs are tax exempt because they are considered vehicles for passive, static investments. If they were to continue buying and selling mortgages they would be acting as ordinary businesses, which are required to pay income taxes.

Peaslee said that to date there haven't been any rulings by the U.S. Tax Court on what is required for REMICs to establish timely ownership of mortgages.

The new angles and perspectives on how sloppy (benign version. Less benign version = fraudulent) the banks were on mortgages and the scale of the mess that they still need to clean up/write off just keep coming. Now the Justice Department's Trustee Program seems to be ramping up on the issue. Apologies for the long post below, but the whole article was good stuff and I couldn't bring myself to edit it down to highlights.
A Low Bid for Fixing a Big Mess
SO the feds finally got one: Raj Rajaratnam, the hedge fund tycoon, is going down for insider trading.

Just don’t think for a moment that this victory for prosecutors will be keeping the high and mighty of finance up at night. No, some giant financial institutions have a bigger worry — namely, how to make the foreclosure fiasco go away.

As the Rajaratnam verdict captivated many on Wall Street last week, the institutions that service about two-thirds of the mortgages in this country offered to pay $5 billion to settle allegations about robo-signing and other shady practices that quick-step troubled borrowers out of their homes.

That figure is a fraction of the $20 billion that state attorneys general had apparently floated. If regulators accept the lowball offer, perhaps that would be because they haven’t dug deep enough.

Because evidence of extensive and abusive servicing practices does in fact exist. It is piling up at the offices of the United States Trustee Program, the arm of the Justice Department that monitors the bankruptcy system. Over the past six months, the trustee has drawn material from 95 field offices covering 88 judicial districts. The findings should dispel any notion that toxic servicing practices were atypical or have done no harm.

Clifford J. White III, director of the executive office of the United States Trustee, discussed some of the findings in an interview last week. But before we recount the ugly details, it’s worth noting the immense pushback the banks have mounted against the trustee office.

Banks have repeatedly tried to thwart the program’s actions, filing lawsuits and court motions to prevent officials from compiling evidence. Never mind that part of a trustee’s job is to investigate possible improprieties in foreclosures to determine if they are poisoning the bankruptcy system.

“We have faced consistent opposition by all of the major servicers,” Mr. White said. “We are currently facing 200 motions to quash our discovery requests. We also are facing upwards of 20 appeals either in district courts or in circuit courts.”

Those pushing back include Bank of America, Citigroup, G.M.A.C., JPMorgan Chase and Wells Fargo, he said.

The banks typically make two arguments. First, they say the trustee program has no legal standing to delve into individual cases between lenders and borrowers because it is not a “party” to these disputes. Every court has rejected this claim. Nonetheless, the tactic has allowed servicers to stall trustees’ discovery requests.

In other cases, the banks agree to turn over information in specific matters of interest to the trustee program but refuse to provide details on their overall policies and procedures, which could show deep and systemic flaws.

Why are these institutions so afraid of a little sunlight?

To be sure, the nationwide investigation by the United States Trustee’s office represents an aggressive tack that big financial institutions are unaccustomed to. “The bankruptcy system provided an early warning sign of problems in mortgage servicing,” Mr. White said. “We began looking a few years ago at some of the violations of mortgage servicers, on a case-by-case basis. What’s different from the past is, if we find a facial discrepancy” — something that’s a problem on its face — “we are off the bat seeking discovery.”

When the banks have provided information, lawyers for the trustee program have often found extensive errors in amounts owed and charges levied. Needless to say, these mistakes do not typically favor the borrowers.

Mr. White declined to get specific. But the mistakes that his office has found fall into two broad categories. One involves inaccurate amounts that the banks say borrowers owe. The accuracy of these documents, which are filed with the courts, is crucial. Borrowers and bankruptcy judges overseeing their cases use them to determine payment schedules to cure defaults, for example.

Inaccuracies often arise because loan servicers fail to reflect that borrowers are in trial loan modifications, like those offered by the government, Mr. White said. As a result, though borrowers are paying the proper amounts, the servicer shows them falling behind. Then the bank moves to restart foreclosure.

IN other cases, proofs of claim filed by servicers are just wildly off base. In one matter, a bank claimed to the court that a borrower owed $52,043. After the borrower objected and a trustee asked for documentation, the amount owed dropped to $3,156.

Imagine what would have happened if the amount hadn’t been questioned?

The other problematic area showing up in the trustees’ inquiries relates to what Mr. White calls improper default servicing fees. These include charges for legal work, property inspections, insurance and appraisals.

Often, the fees charged to troubled borrowers are not even specified. Trustee program officials found a defaulted borrower who was charged $10,260.50 in “prior service fees” with zero documentation. In another case, a borrower fell behind after the lender doubled his escrow payments with no explanation or justification. Then the bank filed a motion to lift the bankruptcy stay so that it could foreclose.

“In fewer than 20 judicial districts,” Mr. White said, “we have identified hundreds of facial deficiencies, including cases in which we seek to investigate inflated or improper escrow charges and cases in which the mortgage servicer sought relief from stay so it could foreclose on a debtor’s home.”

Mistakes happen, of course. And loan servicers like to contend that if errors occur, they are rare and honestly made. But after sifting through the data produced by this investigation, Mr. White disagreed that problems are rare. “In Senate testimony, an executive from Countrywide said its error rate was 1 percent,” Mr. White recalled. “The mortgage servicer industry error rate might be 10 times higher, based on the number of cases we are looking at.”

“There are continued flaws in the process, and they are not merely technical,” Mr. White continued. “Those flaws undermine the integrity of the bankruptcy system. Many homeowners have been harmed, including where the lender has come in and said ‘we want to lift the stay and go back into foreclosure proceedings,’ even though they lacked a sufficient basis to do it.”

He went on: “There are enough examples of this to know that we are not dealing with small numbers.”

So an authoritative source with access to a lot of data has identified industry practices as not only pernicious but also pervasive. Which makes it all the more mystifying that regulators seem eager to strike a cheap and easy settlement with the banks.

The trustees and prosecutors have barely touched rent skimming. I know a case in califronia where a bankrupt flipper is blackmailing a tenant for a lease renewal for a 80 yo lady. Get this BofA is being asked to join the case as the lienholder...... But they forgot to file a piece of paper and looks like they don't intend to enforce the fact the mortgage specifically prohibits 'renting.'. So the 4 yrs this deadbeat collected rents were illegal. The 18 months they stopped paying mortgage and still collected rents is illegal. And their $20k ask for a 6 month paid up front lease renewal is illegal. What does BofA do?, they say we are busy making 10% on the borrowings from the fed.

Seriously, BofA refuses to step in and enforce their mortgage. 18 Fking months after they declared bk, not a single legal document asking for money or enforcing their rights. What a Fking joke.

as a non-finance civilian, i can't wrap my mind around the disconnect between this theoretical worth of something and the actual real money it generates. it's an industry built on nothing and trading in nothing.

Capital formation. Stfu and go learn something....

i did! i came here. thanks for the tip.

The gov't is looking to pull a fast one.
The OCC barely looked at more than a few loan files. They see nothing criminal and The Fed will attempt to change the laws on an issue that's really a state matter.

i think that's what i think too.

The banks have created such a large mess that it is nearly impossible to clean it up piece by piece... so the gov't is going to try to white wash the situation: Get the banks to pay a fine but then let just about everything else stand...

The selective enforcement of the law in this country has gone too far... it is now out-in-the-open that power and money buys companies near immunity to prosecution and real consequences... all for the "greater good"...

Memento. U I like.

Absolutely Memito.
That's what Matt Taibbi is trying to demonstrate on his new article published on the rolling stone:

"Sarah Palin, Meet Linda Green (And MERS): Was Palin's New Home Purchase Preceded By A "Robosigned" (And Fraudulent) Title Release"

"our question: did miss Palin just procure a property to which there is no legitimate title, and which, therefore, may not have been legitimately sold to her? Oh yes, MERS is of course involved too."


From the Wall Street Journal no less. A court rejected a foreclosure because terms of trust were violated and returned a home to the buyer. More evidence that the securitization pools will continue to plague the banks for years.:

"The court is surprised to the point of astonishment that the defendant trust did not comply with the terms," of the securitization agreement, he wrote.

The ruling is one of the first in the nation to strip a mortgage trust of an asset it thought it owned. A similar case earlier this year was decided in the bank's favor when it held that the borrower wasn't a party to the securitization agreement.

Nick Wooten, the lawyer for Ms. Horace, says the case won't necessarily influence other decisions unless it is upheld by a higher court. But he says it is "another brick in the wall of trial-court-level cases that clearly show the wheels fell off the bus in the securitization industry during the bubble."

JPMorgan Chase & Co. (JPM), the second- largest U.S. bank, ousted mortgage chief David Lowman after it overcharged active-duty military personnel on loans and improperly foreclosed on other borrowers.

“Dave Lowman and I have decided he will leave the firm,” Frank Bisignano, the head of home-lending, said today in an internal employee memo obtained by Bloomberg News.

Still more to come on this issue. NY AG investigating. Countrywide as a regular practice held onto the mortgage notes which violates the securitization rules so virtually all pools with Countrywide mortgages can be putback to BOA. Hence:

But Fortune has examined dozens of court records that corroborate the employee's testimony. And if Countrywide's mortgage securitizations systematically failed as it appears they did, Bank of America's potential liability dwarfs its shareholder equity, as the Congressional Oversight Panel points out.

It's hardly news at this point that the whole system is gummed up by missing/fraudulent/improperly executed/improperly transferred/etc mortgage documents, but for what it's worth here are some of the latest stats on just how stuck everything is.
"June 16 (Bloomberg) -- Foreclosure filings in the U.S. tumbled last month to the lowest in almost four years as banks weighed down by an increasing inventory of seized homes delayed processing defaults, according to RealtyTrac Inc.

A total of 214,927 properties received default, auction or repossession notices in May, the fewest since November 2007, the Irvine, California-based data company said today in a statement. Filings dropped 33 percent from a year earlier and 2 percent from April. One in 605 households got a notice.

Foreclosure filings have fallen for eight straight months on a year-over-year basis as banks rework their documentation procedures following claims they improperly repossessed homes. Weak demand from buyers is making it difficult for lenders to sell the properties that they already have on their books, known as real estate owned, or REOs, according to RealtyTrac.

“Foreclosure processing delays continue to mask the true face of the foreclosure situation,” James J. Saccacio, RealtyTrac’s chief executive officer, said in the statement. “Even at a significantly lower level than a year ago, the new supply of REOs exceeds the amount being sold each month.”


Link to the RealtyTrac report referenced in the Bloomberg article:

And the NYT weighs in on the slow pace of resolution of foreclosure cases in a bunch of states. I'll post some of the text, but it's all good stuff and worth clicking through to read the whole article. The part about strategic defaulters not paying the mortgage and then renting out the house and pocketing the rent is priceless.
Backlog of Cases Gives a Reprieve on Foreclosures
Millions of homeowners in distress are getting some unexpected breathing room — lots of it in some places.

In New York State, it would take lenders 62 years at their current pace, the longest time frame in the nation, to repossess the 213,000 houses now in severe default or foreclosure, according to calculations by LPS Applied Analytics, a prominent real estate data firm.

Clearing the pipeline in New Jersey, which like New York handles foreclosures through the courts, would take 49 years. In Florida, Massachusetts and Illinois, it would take a decade.

In the 27 states where the courts play no role in foreclosures, the pace is much more brisk — three years in California, two years in Nevada and Colorado — but the dynamic is the same: the foreclosure system is bogged down by the volume of cases, borrowers are fighting to keep their houses and many lenders seem to be in no hurry to add repossessed houses to their books.

“If you were in foreclosure four years ago, you were biting your nails, asking yourself, ‘When is the sheriff going to show up and put me on the street?’ ” said Herb Blecher, an LPS senior vice president. “Now you’re probably not losing any sleep.”

When major banks acknowledged last fall that they had been illegally processing foreclosures by filing false court documents, they said that any pause in repossessions and evictions would be brief. All of the major servicers agreed to institute reforms in their foreclosure procedures. In April, the Office of the Comptroller of the Currency and other regulators gave the banks 60 days to draw up a plan to do so.

But nothing is happening quickly. When the comptroller’s deadline was reached last week, it was extended another month.

New foreclosure cases and repossessions are down nationally by about a third since last fall, LPS said. In New York, foreclosure filings are down 85 percent since September, according to the New York State Unified Court System.

Mark Stopa, a St. Petersburg, Fla., specialist in foreclosure defense, has 1,275 clients, up from 350 a year ago. About 75 clients have won modifications, dismissals or sold their properties for less than they owed. All the other cases are pending.

“Banks aren’t even trying to win,” said Mr. Stopa, who charges his clients an annual fee of $1,500.

J. Thomas McGrady, the chief judge of Florida’s Sixth Circuit, which includes St. Petersburg, agreed. “We’re here to do what we’re asked to do. But you’ve got to ask. And the banks aren’t asking,” he said.


I think the 62 years number is non-sense. The system is not over-loaded or bogged down. The banks are simply not foreclosing. Banks halted foreclosures and are getting their houses back in order(no pun intended), so there's a strong possibility that we'll see a huge increase in foreclosure activity. There are also some loans that the banks are not in a position to foreclose and may never be in a position due to their sloppy paperwork, so this 62 year number is a again pointless.

In NYS the lender has to get the acting lawyer to affirm to the court that the chain of title is good. Lawyers won't take that risk, i.e. they won't lie anymore, hence the big drop-off in NYS. It'll settle down eventually.

This may seem a bit off the topic, but bear with me. The linked article is the latest report of BofA's rumored plans to sell its stake (or part of it) in China Construction Bank. The rationale is explained as Basel capital rules, specifically the potential capital surcharge that is rumored for large/systemically important banks. My observation would be that if it weren't for the Countrywide mortgage mess that BofA is still lugging around, its asset quality (and thus current capital position) would be much better and its earnings power (and thus ability to earn its way to stronger capitalization) would be much stronger. The ongoing bleed of mortgage write-downs and putbacks, as well as the huge cost of human and legal resources devoted to fixing the robo-signing mess and pursuing foreclosures case-by-case, don't look like they are going to abate any time soon, which is why they end up considering the sale of strategic assets like CCB.

To give people a sense of significance here, the $21bn CCB stake represents about 19% of BofA's current market cap, so it's a big deal for them. Selling half of it to free up capital could be seen as creating a $10bn cushion to spend on putting the mortgage mess behind them over a period of years. On the other hand, you could argue that they are nuts to have almost 20% of market cap tied up in one non-control equity position in a potentially volative emerging market company and that selling down is prudent risk management regardless of the US mortgage position. Whatever the rationale, BofA will be hoping that CCB's stock price holds up until the lockup expires in August. The A shares (Shanghai listed) are flat since 3/31 (the valuation date noted in the article), while the H shares (Hong Kong listed) are down 10%. I don't know what BofA holds.

BofA Said to Weigh Sale of China Construction Bank Stake
By Hugh Son and Christine Harper

June 20 (Bloomberg) -- Bank of America Corp. may sell part of its $21 billion stake in China Construction Bank Corp. to bolster capital before new international standards take effect, said three people briefed on the plans.

Bank of America, the biggest U.S. lender by assets, may try to retain about half of its shares because it intends to remain a strategic investor in the Chinese bank, said two of the people, who declined to be identified because the plans are private. The sales may take place later this year, they said.

Selling the shares could help Bank of America raise capital to comply with tougher minimums that may be imposed by regulators as they try to prevent a repeat of the 2008 financial crisis. The Basel Committee on Banking Supervision is considering plans that may include a surcharge on the largest lenders, people briefed on those talks have said.

Bank of America owned 25.6 billion shares of CCB valued at $21 billion as of March 31, the Charlotte, North Carolina-based lender said in a May regulatory filing. CCB is based in Beijing. A lockup period, in which Bank of America is prohibited from selling most of its shares, expires in August.

“It’s a strategic relationship and it will continue to be one for a long time,” said Larry DiRita, a spokesman for the U.S. bank. Yu Baoyue, a spokesman for CCB, declined to comment.

"Massachusetts County Claims 75% Of Mortgages Assignments Are Invalid And Ineligible For Foreclosure"

"( ) an audit of 2010 mortgage assignments.

* 16% of the assignments were valid, 75% were invalid, and 9% were deemed questionable.
* Of those that are invalid, 27% were fraudulent, 35% showed evidence of robo-signing, and 10%
violated the Massachusetts Mortgage Fraud Statute.
* The proper owner of the mortgages could only be determined 60% of the time."

"The Audit makes the finding that this was not only a MERS problem, but a scheme also perpetuated by MERS shareholder banks such Bank of America, Wells Fargo, JP Morgan and others."

Theresa Edwards and June Clarkson had headed up investigations on behalf of the Florida attorney general’s office for more than a year into the fraudulent foreclosure practices that had become rampant in the Sunshine State. They issued subpoenas and conducted scores of interviews, building a litany of cases that documented the most egregious abuses.

That is, until the Friday afternoon in May when they were called into a supervisor’s office and forced to resign abruptly and without explanation.

Less than a month before they were forced out, a supervisor cited their work as “instrumental in triggering a nationwide review of such practices.” Now, Edwards is convinced their sudden dismissals will have “a chilling effect” on those probes into the shoddy foreclosure practices that caused national outrage when they made headlines last fall.

Their work won them accolades. In the evaluation provided by Edwards, a supervisor wrote that the pair had “achieved what is believed to be the first settlement in the United States relating to law firm foreclosure mills” — a multimillion-dollar settlement a month earlier with a Fort Lauderdale firm.

Despite that praise, Edwards and Clarkson said in separate interviews that they sensed a change when Bondi took office in January. Almost immediately, they said, supervisors began to question their findings and demand details about how they were gathering information.

"That is, until the Friday afternoon in May when they were called into a supervisor’s office and forced to resign abruptly and without explanation." well, of course. You can't have the Law interfere with The Street.

"Jamie Dimon: The Mortgage System Is Such A Disaster "Everybody Is Going To Sue Everybody Else" "

"Jamie Dimon said yesterday that "there have been so many flaws in mortgages that it’s been an unmitigated disaster" and the system is in serious need of an overhaul."

Bloomberg's latest effort on one of their favorite puinching bags, BofA, is a great summary of the many ways in which the home mortgage mess can drain both capital and ongoing earnings power from a bank with a big exposure to the sector. It is a veritable tasting menu of mortgage woes. Excerpts follow:

"Bank of America Corp. (BAC) may have to build its capital cushion by $50 billion and renege again on Chief Executive Officer Brian T. Moynihan’s pledge to raise the firm’s dividend as mortgage losses drain funds.

Expenses tied to soured home loans may total $20.4 billion in the second quarter, pulling the bank further from capital ratios demanded under new international standards, the Charlotte, North Carolina-based company said June 29. The gap may equal 2.75 percent of risk-weighted assets starting in 2013 -- at about $18 billion for each percentage point -- crimping Moynihan’s ability to raise dividends and repurchase shares...


That plan may be stymied as Moynihan writes checks to settle disputes inherited from the 2008 takeover of subprime lender Countrywide Financial Corp., whose lax underwriting led to soaring defaults on mortgages and claims from investors who bought or insured them. He announced a $3 billion accord with Fannie Mae and Freddie Mac in January, a $1.6 billion deal with bond insurer Assured Guaranty Ltd. in April and the $8.5 billion settlement with institutional investors last month.

With the costs climbing, Bank of America last month cut its 2013 forecast of its capital ratios under the new rules to 6.75 percent to 7 percent, from 8 percent in April. That estimate is based on the premise that the rules are fully enforced in 2013.

Executives and analysts expect the rules will be phased in over several years, making it less likely that Bank of America will be left short on capital and be forced to sell new shares. The added time would allow the bank to reach its goals by retaining earnings or getting rid of riskier assets that require a lender to hold more capital to cushion losses.


The lender still faces more mortgage-related costs that may sap capital. The five largest servicers may pay more than $20 billion to settle probes by the U.S. Department of Justice and 50 state attorneys general over shoddy mortgage servicing practices, said two people briefed on the matter.

Bank of America may also have another $5 billion in costs tied to repurchase demands from institutional investors and could face other expenses related to securities and fraud allegations on soured Countrywide loans, the company said. Further, if U.S. home prices decline beyond internal company estimates, the bank may need to set aside more for bad mortgages purchased by Fannie Mae, executives have said.

“Will the charges this quarter for all these mortgage settlements kind of be the end of it?,” said Anton Schutz, the president of Mendon Capital Advisors Corp., an asset manager that specializes in the stocks of financial-services companies and owns Bank of America shares. “If it is, they can build capital really quickly. There’s the constant fear that they need to raise capital, which I disagree with.” "

NEW YORK (CNNMoney) -- Borrowers who were overcharged by Countrywide Financial more than three years ago are finally going to get what's due to them.

The Federal Trade Commission said Wednesday that, as a result of a settlement reached with the mortgage lender more than a year ago, it is sending out checks totalling nearly $108 million to more than 450,000 former Countrywide borrowers.

It's astonishing that a single company could be responsible for overcharging more than 450,000 homeowners," FTC Chairman Jon Leibowitz said in a prepared statement. "Countrywide's unconscionable behavior harmed American consumers on a massive scale and we are proud to be getting every single dollar back to hundreds of thousands of struggling consumers who can least afford to lose the money."

There were two categories of overcharges, according to Frank Dorman, an FTC spokesman. The first were tied to inspections, home maintenance, lawn mowing and other services that Countrywide provided to homes of borrowers in default.

Instead of directly hiring local vendors for those tasks, the company used their own subsidiary companies to hire the vendors -- and then had the subsidiaries mark up the fees, sometimes doubling them or more. They passed along the overcharges to the homeowners. Affected consumers will receive all those overcharges back.

The second set of overcharges came in the form of false claims and fees to escrow accounts of borrowers who entered into Chapter 13 bankruptcies (this type of bankruptcy protection provides debtors with time to pay off what they owe). The borrowers weren't notified about the fees or charges at the time they were incurred. The FTC says they will get back the entire amount of those undisclosed fees or charges.

B of A seems to be running at several new developments a week on the mortgage mess, few of them positive. Here is a sampling of recent ones. In addition to the dollar amounts in dispute, this gives a sense of how many different fronts the banks are fighting on in the battle to duck responsibility for mortgage underwriting and servicing practices during the bubble.

AIG Plans to Sue Bank of America Over Losses Tied to Mortgage Underwriting
The NYT has a longer article on the same topic this morning.

B of A Signs HUD Pact Over Mortgage Abuse
The Department of Housing and Urban Development has reached a settlement with Bank of America that releases the company from liability for failing to adequately provide alternatives to foreclosure on 57,000 delinquent government-insured mortgages.

The agreement, a draft of which was obtained by American Banker, was previously undisclosed. It has been forged on a separate but parallel track from continuing settlement talks between Bank of America, state attorneys general and other regulators over alleged mortgage origination and servicing failures.

B of A's pact with HUD requires it to waive a minimum of $10 million in unpaid mortgage payments and vet each of the 57,000 delinquent borrowers for a possible loan modification, short sale or other foreclosure alternative.

"Our total costs for the program will be multiples of that" $10 million minimum, B of A spokesman Dan Frahm said. The deal calls for measures to "ensure these customers have every opportunity to stay in their homes," he added.

After such outreach, the settlement paves the way for B of A to foreclose on homes that borrowers could not afford even after a mortgage modification and those that have been left vacant by owners.

Mortgage Settlement Challenged
The New York attorney general is moving to block a proposed $8.5 billion settlement struck in June by Bank of New York Mellon and Bank of America over troubled loan pools issued by Countrywide. A lawsuit filed late Thursday accuses Bank of New York of fraud in its role as trustee overseeing the pools for investors.

BAC is in serious trouble. They'vve clearly under-reserved for the put backs, and with the added worries I think there's an increased risk of bank failure. The market is already saying that 70% of BAC'S book value is pure fantasy.

Ongoing game of executive musical chairs at BAC puts a new guy in charge of troubled mortgage assets. In this case, the game is played using the deck chairs on the Titanic...

Bank of America names Sturzenegger to handle troubled mortgage assets
Aug 18, 2011 (The Charlotte Observer - McClatchy-Tribune Information Services via COMTEX News Network) -- Bank of America Corp. chief executive Brian Moynihan has picked one of the company's top investment bankers to lead the unit housing the bank's troubled mortgage assets, according to an internal memo today.
Ron Sturzenegger will replace Terry Laughlin as head of Legacy Asset Servicing, which was formed in February to hold 1.3 million soured mortgages largely inherited from Countrywide Financial. Laughlin becomes the bank's chief risk officer, a post he was named to last month.
Sturzenegger was global head of real estate, gaming and lodging corporate and investment banking for Bank of America Merrill Lynch, the bank's capital markets and investment banking unit. He will report to Moynihan, whose biggest challenge is stemming losses tied to the 2008 Countrywide acquisition.
"Ron is a proven leader who brings deep credibility and expertise in real estate to the Legacy Asset Servicing team, and I welcome him to the management team," Moynihan said in the memo. "Ron benefits from the great momentum the Legacy Asset Servicing team has created in the past year, and I am confident he and the team will build on that as we put these issues behind us."
Sturzenegger joined Bank of America in 1998. Recently he was a leader on the bank's efficiency initiative known as Project New BAC, focused on the home loans business.
Bank of America's executive shuffle began in April when Moynihan chose chief risk officer Bruce Thompson as the bank's chief financial officer, replacing Chuck Noski, who became a vice chairman. Paula Dominick, who served as interim chief risk officer, returns to the position of global compliance executive.
Worries about the bank's mortgage portfolio and the rising cost to settle claims related to soured mortgage-back securities sold to investors have weighed on the bank's stock in recent weeks. The bank's shares are down about 5 percent to $7.09 today on renewed worries about European banks and the economy.
"There are not many days when I get up and think positively about the Countrywide transaction," Moynihan said in a conference call with one of the bank's largest investors last week.

NEW YORK -- A director of the Federal Reserve Bank of New York, who is supposed to represent the public, has provoked criticism that she has a conflict of interest as she defends Wall Street against the state's top law enforcer.

Kathryn Wylde, deputy chair of the New York Fed's board, challenged state Attorney General Eric Schneiderman's opposition to a proposed $8.5 billion settlement between Bank of America and a group of investors -- leaping to the defense of the financial industry -- according to remarks quoted Monday in The New York Times.

Wylde's day job is president and chief executive of the Partnership for New York City, a nonprofit that is funded by dues from its partner companies, which include the very banks involved in the talks to settle claims over hundreds of billions of dollars in soured home loans. Her apparent sympathy toward big banks compromises Wylde's ability to represent the public as a director of a bank regulator, said research analyst Christopher Whalen, who, along with analyst Barry Ritholtz, called for Wylde to resign.

Wylde, whose duty at the Fed is explicitly "to represent the public," said in an email that she is not a bank regulator, that she does not have a conflict of interest and that her role as a New York Fed director is "to provide input to the Fed on regional economic conditions." Despite the fact that the New York Fed itself regulates banks, its board does not, Wylde explained.

Characterizing her conversation with Mr. Schneiderman that day as “not unpleasant,” Ms. Wylde said in an interview on Thursday that she had told the attorney general “it is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”

Comment removed.

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers%u2019 incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

The impending litigation underscores how almost exactly three years after the collapse of Lehman Brothers and the beginning of a financial crisis caused in large part by subprime lending, the legal fallout is mounting.

Some of the largest mortgage servicers are still fabricating documents that should have been signed years ago and submitting them as evidence to foreclose on homeowners.

The practice continues nearly a year after the companies were caught cutting corners in the robo-signing scandal and about six months after the industry began negotiating a settlement with state attorneys general investigating loan-servicing abuses.

Many banks are missing the original papers from when they securitized the mortgages, in some cases as long ago as 2005 and 2006, according to plaintiffs' lawyers. They and some industry members say the related mortgage assignments, showing transfers from one lender to another, should have been completed and filed with document custodians at the time of transfer.

"It's one thing to not have the documents you're supposed to have even though you told investors and the SEC you had them," says Lynn E. Szymoniak, a plaintiff's lawyer in West Palm Beach, Fla. "But they're making up new documents."

The banks argue that creating such documents is a routine business practice that simply "memorializes" actions that should have occurred years before. Some courts have endorsed that view, but others, such as the Massachusetts Supreme Judicial Court, have found that this amounts to a lack of sufficient evidence and renders foreclosures invalid.

According to a document submitted in a Florida court by Bank of America Corp., bank assistant vice president Sandra Juarez signed a mortgage assignment on July 29 of this year that purported to transfer ownership of a mortgage from New Century Mortgage Corp. to a trustee, Deutsche Bank. Two problems with that: New Century, a subprime lender, went bankrupt in 2007; and the Deutsche Bank trust that purported to hold the loan was created for a securitization completed in 2006 — about five years before Juarez signed it over to the trust. (Bank of America, as the servicer of the loan, was seeking to foreclose on behalf of the trust and its bondholders.)

When plaintiff's lawyers then try to depose the person whose name is stamped on the endorsement, "we're being told the person is no longer employed by the servicer or by the party for whom they signed," Gardner says.

Linda Tirelli, a New York bankruptcy lawyer, calls such mortgage documents "Ta-Da!" assignments because they seem to appear out of nowhere.

"Why are they creating their own assignments to begin with?" asks Tirelli, who represents borrowers. "Why is this even an issue?"

Toxie, Planet Money's pet toxic asset, died last year. But we learned today that she may rise from the grave.

And she could theoretically earn us $75,000 — which is astonishing, given that we bought her for only $1,000. If we do make a profit, all the money will go to charity.

Here's the story: Toxie was (is!) a mortgage-backed security — one of the complicated financial instruments that were the heart of the financial crisis. When we bought Toxie, we bought into a pool of thousands of mortgages around the United States.

This week, that particular pool became the subject of a lawsuit. (Here's the complaint; here's a WSJ story on the lawsuit.)

The complaint argues that the mortgages in the pool were a lot worse than they were supposed to be.

In a review of 786 mortgages, "an extraordinary sixty-six percent of the Loans breached one or more Mortgage Representations," the suit says.

One person who took out a mortgage claimed to earn $16,800 a month as a senior program administrator at a communications company. The lawsuit says documents show that the person actually was self-employed and had an income of $0.

Another borrower claimed to be a manager at a cell phone company. That person actually worked for a hotel company in housekeeping, according to a document cited by the lawsuit.

The loans were provided by Countrywide, which Bank of America bought in 2008. The lawsuit was filed by the trustee in charge of the mortgage pool. It asks Bank of America to buy back the mortgages at full value.

If that happened all the investors in the mortgage pool would receive the full face value of our toxic assets. In our case, that would be $75,000.

The FHA took its sweet time filing this lawsuit. I believe purposely so. They have had all the time in the world to gather evidence and make a case. This is a serious case, and Fannie and Freddie have subpoena power. That subpoena power gives the FHFA a big advantage over private investors notes the Wall Street Journal in Big Banks Face Suits on Mortgage Bond Losses

Bank of America is scared to death and rightfully so.

The timing is indeed unfortunate. It is a wonder that the govt didn't file this suit when the banks were on an upswing --courtesy of QE2--- and benefitted from rising consumer confidence. But the banks are now at risk due to Euro bank contagion and rising credit concerns. If the economy continues downward, this suit might just be moot -- even if one bank is sacrificed to the public desire to know that the banks are not too big to fail, clearly the govt will not allow all these institutions to fail. How is the govt going to recover this money if they have to support the banks at the same time.

Also surprised at the exposure of JP Morgan. I assume that this came in the most part from acquiring Bear Stearns. Since the govt essentially forced this company on JP Morgan, it is easy to assume what JP's defense will be. But Bank of America's exposure is astounding. I wonder if Buffet was assuming that the govt would not let the bank fail when he made his investment.

Well at the end of the day, the Conservators of Fannie/Freddie have an obligation to recoup lost money. We've also sacrificed rule of law too much. If what the suit alleges is factual we can't ignore the law because it's inconvenient. Perhaps we now have too big too jail.

Well, all the discussion on this thread about how the MERS end run around the law will come to an end has finally come to pass.

that's gonna leave a mark....

So So sorry.... the property belongs to NOONE. Great job Bubble Sucklers....

The lawsuits just keep on coming. Considering how long ago we were discussing this possibility on this thread, I'm surprised at how long it has taken. The fact that these suits and others are in the billions, I think it fair to say that the bank ceo's were misleading in their claims that these suits would not pose a material problem.

I went back to see how Talcott Franklin's clearing house was doing -- a lawyer I brought up in many of the above posts. It seems that Franklin's clearing house now reps more than half of $1.3 trillion of outstanding home loan bonds without govt. backing. Since they just initiated their first suit in May, it looks like we will indeed be seeing pressure on the banks for months and even years to come. Take a look at his client list. Serious companies that will undoubtedly demand their pound of flesh.

The effort, announced in an e-mailed statement, represents the first bid by members of the clearing house to publicly organize their collective holdings, accounting for more than half of $1.3 trillion of outstanding home-loan bonds without government backing, he said. As investors with 25 percent of individual deals agree to take action, Talcott Franklin will lobby the servicer of the mortgages and bond trustees to review loan files and seek repurchases on their behalf, he said.

The fact that some of these lawsuits took several years might suggest a lot of time and money went into them and that they may not be so easily dismissed. There's a lot of money out there and lawyers smell profit and plaintiffs think believe they have a good possibility of recouping some lost money. The public hearings on the mortgage crisis have not hurt either. What was that quote? Shitty CDOs?

Well California pulled out of the 50 state foreclosure talks. This effectively kills the process which is for the considering that Ohio kicked out NY for actually wanting to investigate and not white wash.

SACRAMENTO, Calif. — California Attorney General Kamala Harris said Friday that she will not agree to a settlement over foreclosure abuses that federal officials and other state attorneys general are negotiating with major U.S. banks.

Her announcement is the latest to undermine a resolution that had been in the works between the banks and attorneys general in all 50 states. Other states including New York also have expressed reservations about the deal, which would help keep people in their homes and compensate borrowers who faced improper foreclosures.

Suits just keep on coming. Looks like JP Morgan is keeping BOFA company here..

JPMorgan Chase & Co and Bank of America Corp were hit with new lawsuits by investors claiming losses on USD 4.5 billion of soured mortgage debt, adding to litigation targeting the two largest US banks.

The plaintiff Sealink Funding Ltd said it lost money after buying nearly USD 2.4 billion of residential mortgage-backed securities (RMBS) from JPMorgan and USD 1.6 billion from Bank of America from 2005 to 2007, relying on offering materials that were misleading about the quality of the underlying loans.

Beau Biden- "Banks have lost track of who owns which mortgage"

Oct. 26 (Bloomberg) -- New York Attorney General Eric Schneiderman is working with his Delaware counterpart, Beau Biden, to investigate what he called possible “criminal acts” by financial institutions tied to the foreclosure crisis.

“This was a man-made crisis -- it was created by regulatory neglect and greed,” Schneiderman said last night in a TV interview.

Oct. 27 (Bloomberg) -- The Delaware attorney general's office sued Merscorp Inc., which runs a national mortgage registry used by banks, saying its practices are deceptive and hide information from borrowers.

“MERS engaged and continues to engage in a range of deceptive trade practices that sow confusion among consumers, investors and other stakeholders in the mortgage finance system, damage the integrity of Delaware's land records, and lead to unlawful foreclosure practices,” Biden said.

“The unreliability of the MERS System, when compounded with MERS's reliance on the records in the MERS System, is deceptive and harms consumers by permitting and encouraging foreclosures for which the authority has not been fully determined and may not be legitimate,” the attorney general said.

Biden asked the court to bar MERS from initiating any foreclosure actions in the company's name, from acting as a nominal mortgage lender when it didn't have a “beneficial interest” in the property and from recording such mortgages in the company's name.

But.... cue the tea party protesters. AG's negotiating plan with banks for principal relief on mortgages. The moral hazard crowd should go ballistic.

Ironically, there is common ground between Tea-party and OWS crowd. Both don't like crony capitalism where gov't bails out and protects big business. Both say they are against special interest tax deductions. And both groups have tons of people who don't understand the issues.

Moral hazzard on a citi bank bail out is not that different than gov't forcing a mortgage modification on someone's house they knew they couldn't afford with a faked income.

Five major banks could be required to commit roughly $15 billion to reduce principal balances for struggling homeowners and modify loans in other ways under a proposed deal to settle allegations linked to the "robo-signing" scandal

I think the problem lies in gov't intervention. Banks are holding the debt above market value in my opinion(with the knowledge of regulators). Reducing the value to market prices means taking a loss. Banks aren't lending because of they are not technically solvent and consumers aren't borrowing because they are over-leveraged with bad debt.

Of course if we had mark to market and true market driven finance sector none of this would be occurring.

Foreclosure filings in Nevada plunged in October during the first month of a new state law stiffening foreclosure-processing requirements.

Nevada’s state Assembly passed a measure that took effect on Oct. 1 designed to crack down on “robo-signing,” where bank employees signed off on huge numbers of legal filings while falsely claiming to have personally reviewed each case. Banks suspended their foreclosure filings one year ago and have gradually restarted them after those and other improper foreclosure-processing practices surfaced.

Among other steps, the Nevada law makes it a felony—and threatens to hold individuals criminally liable—for making false representations concerning real estate title. Individuals are also subject to civil penalties of $5,000 for each violation.

So Riversider, with the signing of the deal, what does it mean for MERS? I sounds like there are still big issues to be settled in court, like whether it was legal to not document transactions with the county clerk.

What we do know is that this settlement screws the investor, Banks don't have to write down the 2nd liens on their books and can go directly to the first liens held by investors. The agreement presents servicers owned by banks with a huge conflict of interest. As far as MERS, the suit brought by Eric Schneiderman has yet to get fleshed out. I don't see the settlement so far as changing things dramatically on the MERS front so far.

Thursday, February 9, 2012
The Top Twelve Reasons Why You Should Hate the Mortgage Settlement

As readers may know by now, 49 of 50 states have agreed to join the so-called mortgage settlement, with Oklahoma the lone refusenik. Although the fine points are still being hammered out, various news outlets (New York Times, Financial Times, Wall Street Journal) have details, with Dave Dayen’s overview at Firedoglake the best thus far.

The Wall Street Journal is also reporting that the SEC is about to launch some securities litigation against major banks. Since the statue of limitations has already run out on securities filings more than five years old, this means they’ll clip the banks for some of the very last (and dreckiest) deals they shoved out the door before the subprime market gave up the ghost.

The various news services are touting this pact at the biggest multi-state settlement since the tobacco deal in 1998. While narrowly accurate, this deal is bush league by comparison even though the underlying abuses in both cases have had devastating consequences.

The tobacco agreement was pegged as being worth nearly $250 billion over the first 25 years. Adjust that for inflation, and the disparity is even bigger. That shows you the difference in outcomes between a case where the prosecutors have solid evidence backing their charges, versus one where everyone know a lot of bad stuff happened, but no one has come close to marshaling the evidence.

The mortgage settlement terms have not been released, but more of the details have been leaked:

1. The total for the top five servicers is now touted as $26 billion (annoyingly, the FT is calling it “nearly $40 billion”), but of that, roughly $17 billion is credits for principal modifications, which as we pointed out earlier, can and almost assuredly will come largely from mortgages owned by investors. $3 billion is for refis, and only $5 billion will be in the form of hard cash payments, including $1500 to $2000 per borrower foreclosed on between September 2008 and December 2011.

Banks will be required to modify second liens that sit behind firsts “at least” pari passu, which in practice will mean at most pari passu. So this guarantees banks will also focus on borrowers where they do not have second lien exposure, and this also makes the settlement less helpful to struggling homeowners, since borrowers with both second and first liens default at much higher rates than those without second mortgages. Per the Journal:

“It’s not new money. It’s all soft dollars to the banks,” said Paul Miller, a bank analyst at FBR Capital Markets.

The Times is also subdued:

Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out because earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected.

2. Schneiderman’s MERS suit survives, and he can add more banks as defendants. It isn’t clear what became of the Biden and Coakley MERS suits, but Biden sounded pretty adamant in past media presentations on preserving that.

3. Nevada’s and Arizona’s suits against Countrywide for violating its past consent decree on mortgage servicing has, in a new Orwellianism, been “folded into” the settlement.

4. The five big players in the settlement have already set aside reserves sufficient for this deal.

Here are the top twelve reasons why this deal stinks:

1. We’ve now set a price for forgeries and fabricating documents. It’s $2000 per loan. This is a rounding error compared to the chain of title problem these systematic practices were designed to circumvent. The cost is also trivial in comparison to the average loan, which is roughly $180k, so the settlement represents about 1% of loan balances. It is less than the price of the title insurance that banks failed to get when they transferred the loans to the trust. It is a fraction of the cost of the legal expenses when foreclosures are challenged. It’s a great deal for the banks because no one is at any of the servicers going to jail for forgery and the banks have set the upper bound of the cost of riding roughshod over 300 years of real estate law.

2. That $26 billion is actually $5 billion of bank money and the rest is your money. The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401 (k)s. Refis of performing loans also reduce income to those very same investors.

3. That $5 billion divided among the big banks wouldn’t even represent a significant quarterly hit. Freddie and Fannie putbacks to the major banks have been running at that level each quarter.

4. That $20 billion actually makes bank second liens sounder, so this deal is a stealth bailout that strengthens bank balance sheets at the expense of the broader public.

5. The enforcement is a joke. The first layer of supervision is the banks reporting on themselves. The framework is similar to that of the OCC consent decrees implemented last year, which Adam Levitin and yours truly, among others, decried as regulatory theater.

6. The past history of servicer consent decrees shows the servicers all fail to comply. Why? Servicer records and systems are terrible in the best of times, and their systems and fee structures aren’t set up to handle much in the way of delinquencies. As Tom Adams has pointed out in earlier posts, servicer behavior is predictable when their portfolios are hit with a high level of delinquencies and defaults: they cheat in all sorts of ways to reduce their losses.

7. The cave-in Nevada and Arizona on the Countrywide settlement suit is a special gift for Bank of America, who is by far the worst offender in the chain of title disaster (since, according to sworn testimony of its own employee in Kemp v. Countrywide, Countrywide failed to comply with trust delivery requirements). This move proves that failing to comply with a consent degree has no consequences but will merely be rolled into a new consent degree which will also fail to be enforced. These cases also alleged HAMP violations as consumer fraud violations and could have gotten costly and emboldened other states to file similar suits not just against Countrywide but other servicers, so it was useful to the other banks as well.

8. If the new Federal task force were intended to be serious, this deal would have not have been settled. You never settle before investigating. It’s a bad idea to settle obvious, widespread wrongdoing on the cheap. You use the stuff that is easy to prove to gather information and secure cooperation on the stuff that is harder to prove. In Missouri and Nevada, the robosigning investigation led to criminal charges against agents of the servicers. But even though these companies were acting at the express direction and approval of the services, no individuals or entities higher up the food chain will face any sort of meaningful charges.

9. There is plenty of evidence of widespread abuses that appear not to be on the attorney generals’ or media’s radar, such as servicer driven foreclosures and looting of investors’ funds via impermissible and inflated charges. While no serious probe was undertaken, even the limited or peripheral investigations show massive failures (60% of documents had errors in AGs/Fed’s pathetically small sample). Similarly, the US Trustee’s office found widespread evidence of significant servicer errors in bankruptcy-related filings, such as inflated and bogus fees, and even substantial, completely made up charges. Yet the services and banks will suffer no real consequences for these abuses.

10. A deal on robosiginging serves to cover up the much deeper chain of title problem. And don’t get too excited about the New York, Massachusetts, and Delaware MERS suits. They put pressure on banks to clean up this monstrous mess only if the AGs go through to trial and get tough penalties. The banks will want to settle their way out of that too. And even if these cases do go to trial and produce significant victories for the AGs, they still do not address the problem of failures to transfer notes correctly.

11. Don’t bet on a deus ex machina in terms of the new Federal foreclosure task force to improve this picture much. If you think Schneiderman, as a co-chairman who already has a full time day job in New York, is going to outfox a bunch of DC insiders who are part of the problem, I have a bridge I’d like to sell to you.

12. We’ll now have to listen to banks and their sycophant defenders declaring victory despite being wrong on the law and the facts. They will proceed to marginalize and write off criticisms of the servicing practices that hurt homeowners and investors and are devastating communities. But the problems will fester and the housing market will continue to suffer. Investors in mortgage-backed securities, who know that services have been screwing them for years, will be hung out to dry and will likely never return to a private MBS market, since the problems won’t ever be fixed. This settlement has not only revealed the residential mortgage market to be too big to fail, but puts it on long term, perhaps permanent, government life support.

As we’ve said before, this settlement is yet another raw demonstration of who wields power in America, and it isn’t you and me. It’s bad enough to see these negotiations come to their predictable, sorry outcome. It adds insult to injury to see some try to depict it as a win for long suffering, still abused homeowners.

“This was a relatively cheap resolution for the banks,” said Simon, the mortgage head at Pimco, which runs the world's largest bond fund. “A lot of the principal reductions would have happened on their loans anyway, and they're using other people's money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load.”

“Think about this, you tell your kid, ‘You did something bad, I'm going to fine you $10, but if you can steal $22 from your mom, you can pay me with that,'” Simon said yesterday in a telephone interview from Newport Beach, California.

An audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday.

The depth of the problem raises questions about whether at least some foreclosures should be considered void, Mr. Ting said. “We’re not saying that every consumer should not have been foreclosed on or every lender is a bad actor, but there are significant and troubling issues,” he said.

In a significant number of cases — 85 percent — documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found. And in 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust. In other words, the report said, “a ‘stranger’ to the deed of trust,” gained ownership of the property; as a result, the sale may be invalid, it said.

In 6 percent of cases, the same deed of trust to a property was assigned to two or more different entities, raising questions about which of them actually had the right to foreclose. Many of the foreclosures that were scrutinized showed gaps in the chain of title, the report said, indicating that written transfers from the original owner to the entity currently claiming to own the deed of trust have disappeared.

The audit also raises serious questions about the accuracy of information recorded in the Mortgage Electronic Registry System, or MERS, which was set up in 1995 by Fannie Mae and Freddie Mac and major lenders. The report found that 58 percent of loans listed in the MERS database showed different owners than were reflected in other public documents like those filed with the county recorder’s office.

US taxpayers are expected to subsidise the $40bn settlement owed by five leading banks over allegations that they systematically abused borrowers in pursuit of improper home seizures, the Financial Times has learnt.

a clause in the provisional agreement – which has not been made public – allows the banks to count future loan modifications made under a 2009 foreclosure-prevention initiative towards their restructuring obligations for the new settlement, according to people familiar with the matter.

Neil Barofsky, a Democrat and the former special inspector-general of the troubled asset relief programme, described this clause as “scandalous”.

“It turns the notion that this is about justice and accountability on its head,” Mr Barofsky said.

BofA, for instance, will be able to use future modifications made under Hamp towards the $7.6bn in borrower assistance it is committed to provide under the settlement. Under Hamp, the bank will receive payments for averting borrower default and reimbursement from taxpayers for principal written down.

This kind of stuff drives me crazy. Barofsky is right, of course.

After many months of wrangling, a foreclosure settlement has been reached between 49 state attorneys general and a consortium of banks.

It is an epic failure of law and a triumph for bank attorneys.

Foreclosure laws vary from state to state. However, all are specific and precise as to the legal steps that must be followed, from the homeowner’s initial delinquency onward. There are benefits to giving the homeowner a chance to “cure their default.” It is in everyone’s interest for the homeowner to catch up if possible.

Before any foreclosure can proceed, a lender must run through a checklist of specifics for the court to move forward. This review can take 45 to 120 minutes per file and addresses, for instance:

●When was the original loan made, and for how much?

●Who is the borrower? Who is the original lender?

●What is the address of the property?

●Which bank holds the mortgage note? Was the note transferred? When?

●When was the last payment made?

●How much is owed on the loan?

●Was the borrower notified of the delinquency? Default?

●Has the borrower been served notice? When, where and how?

Banks review these details to make sure there was not an administrative error. (Oops! We applied payments to wrong account!)

The banker who reviewed these files fills out and signs an affidavit, which is then notarized. It is the written equivalent of sworn testimony in court. Judges take affidavits extremely seriously. False affidavits bypass the entire fact-finding and legal process, and the result can be a miscarriage of justice. Anyone who lies on one commits perjury, a felony punishable by jail time.

At least, they used to get jail time.

...the settlement reveals the corrupting influence of bank bailouts. Government is supposed to enforce laws equally and fairly. Instead, it is protecting its investments in rogue banks. They are committed to their original error and are loath to admit it. This is the reason that after a surgical accident, a new surgeon does the repair. He is objective and has nothing to hide. Conflicted governments, though, are focused on their reputation and reelection.

Last October, I wrote a post entitled "Robosigning 2.0" that discussed some job ads for outsourced OCC foreclosure reviews. I predicted based on the job ad qualifications that the foreclosure reviews would be nothing other than a whitewash. The OCC doesn't want anyone digging too deeply into the solvency of the major banks or into the mess they've made of the mortgage paperwork system. Well, now there's evidence that this is exactly what's going on. The interview with this whistleblower is well worth reading. Put this one in the suspension of belief category:

Supervisors told his entire group that “Wells Fargo had submitted over 10,000 files to Promentory. Only 4 were found to be in question, and upon final review by Wells, no harm was found.” So, 10,000 homeowners submitted their complaints and all 10,000 were deemed to be models of perfection.

It will be interesting to see the final figures on the reviews...if the OCC releases them. (Maybe I should brush up on my FOIA skills....) I really hope that mainstream news organizations pick up on this the way 60 Minutes did on DocX. I would say something about how we should be calling for the Comptroller's resignation, but who am I kidding. The story in consumer finance politics is that when it is banks vs. debtors, the debtors lose. That was the outcome in 2005. That was the outcome with cramdown. And that's the outcome with robosigning. There's no Association of American Debtors working the Hill. Consumers only win when the issue affects the middle class, not those falling out of it. Witness the CARD Act and the CFPB. And even those took a financial crisis of epic proportions. I worry where we'll be in five years once the memory of the crisis has faded and "it was overregulation's fault" revisionism has become respectible coventional wisdom for half of the polity. Sigh.

Last October, I wrote a post entitled "Robosigning 2.0" that discussed some job ads for outsourced OCC foreclosure reviews. I predicted based on the job ad qualifications that the foreclosure reviews would be nothing other than a whitewash. The OCC doesn't want anyone digging too deeply into the solvency of the major banks or into the mess they've made of the mortgage paperwork system. Well, now there's evidence that this is exactly what's going on. The interview with this whistleblower is well worth reading. Put this one in the suspension of belief category:

Supervisors told his entire group that “Wells Fargo had submitted over 10,000 files to Promentory. Only 4 were found to be in question, and upon final review by Wells, no harm was found.” So, 10,000 homeowners submitted their complaints and all 10,000 were deemed to be models of perfection.

It will be interesting to see the final figures on the reviews...if the OCC releases them. (Maybe I should brush up on my FOIA skills....) I really hope that mainstream news organizations pick up on this the way 60 Minutes did on DocX. I would say something about how we should be calling for the Comptroller's resignation, but who am I kidding. The story in consumer finance politics is that when it is banks vs. debtors, the debtors lose. That was the outcome in 2005. That was the outcome with cramdown. And that's the outcome with robosigning. There's no Association of American Debtors working the Hill. Consumers only win when the issue affects the middle class, not those falling out of it. Witness the CARD Act and the CFPB. And even those took a financial crisis of epic proportions. I worry where we'll be in five years once the memory of the crisis has faded and "it was overregulation's fault" revisionism has become respectible coventional wisdom for half of the polity. Sigh.

Four years after the disintegration of the financial system, Americans have, rightfully, a gnawing feeling that justice has not been served. Claims of financial fraud against companies like Citigroup and Bank of America have been settled for pennies on the dollar, with no admission of wrongdoing. Executives who ran companies that made, packaged and sold trillions of dollars in toxic mortgages and mortgage-backed securities remain largely unscathed.

Meager resources have been applied to investigate the financial assault on our country, which wiped away trillions of dollars in household wealth and has resulted in 24 million people jobless or underemployed. The Financial Crisis Inquiry Commission, which Congress created to examine the full scope of the crisis, was given a budget of $9.8 million — roughly one-seventh of the budget of Oliver Stone’s “Wall Street: Money Never Sleeps.” The Senate Permanent Subcommittee on Investigations did its work on the financial crisis with only a dozen or so Congressional staff members.

No one should seek or condone prosecutions for revenge or political purposes. But laws need to be enforced to deter future malfeasance. Just as important, the American people need to believe that a thorough investigation has been conducted; that our judicial system has been fair to all, regardless of wealth and power; and that wrongs have been righted.

Reuters) - Bank of America NA prevented homeowners from receiving mortgage-loan modifications under a federal program in order to avoid millions of dollars in losses while benefitting from financial incentives for participating in the program, according to a complaint unsealed in federal court Wednesday.

The complaint unsealed Wednesday was filed by whistleblower Gregory Mackler, a Colorado resident who said he worked alongside Bank of America executives while an employee at Urban Lending Solutions, a company to which Bank of America contracted some of its HAMP work.

While working at Urban Lending, Mackler said he saw BofA and its loan servicing subsidiary, BAC Homes Loans Servicing LP, implement "business practices designed to intentionally prevent scores of eligible homeowners from becoming eligible or staying eligible for permanent HAMP modification."

The bank and its agents routinely pretended to have lost homeowners' documents, failed to credit payments during trial modifications and intentionally misled homeowners about their eligibility for the program, the complaint alleged.

Under the terms of the settlement, the banks will provide $26 billion worth of relief to borrowers and aid to states for antiforeclosure efforts. In exchange, they will get immunity from government civil lawsuits for a litany of alleged abuses, including wrongful denial of loan modifications and wrongful foreclosures. That $26 billion is paltry compared with the scale of wrongdoing and ensuing damage, including 4 million homeowners who have lost their homes, 3.3 million others who are in or near foreclosure, and more than 11 million borrowers who are underwater by $700 billion.

The settlement could also end up doing more to clean up the banks’ books than to help homeowners. Banks will be required to provide at least $17 billion worth of principal-reduction loan modifications and other relief, like forbearance for unemployed homeowners. Compelling the banks to do principal write-downs is an undeniable accomplishment of the settlement. But the amount of relief is still tiny compared with the problem. And the banks also get credit toward their share of the settlement for other actions that should be required, not rewarded.

For instance, they will receive 50 cents in credit for every dollar they write down on second liens that are 90 to 179 days past due, and 10 cents in credit for every dollar they write down on second liens that are 180 days or more overdue. At those stages of delinquency, the write-downs bring no relief to borrowers who have long since defaulted. Rather than subsidizing the banks’ costs to write down hopelessly delinquent loans, regulators should be demanding that banks write them off and take the loss — and bring some much needed transparency to the question of whether the banks properly value their assets.

RS: This is an appalling dereliction of the judicial system. Most people have no idea how this egregious distortion of the financial system and the public trust has hurt Americans. Someday books will be written and I do not think history will be kind to all the "sweep it under the carpet" expedient fixes. And I think it highlights how close we all were to the national financial precipice -- the democrats who should be approaching this fiasco like a dog with a bone, are blinking in an effort to either save financial institutions --- or, cynically, the election. It pains me as I am a Democrat. This period of history -- when it is finally, fully recorded-- will be mesmerizing. We chronicled a significant part of it on this thread.

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