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Matt Taibbi: Bank of America is a “raging hurricane of theft and fraud”

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Piggybankblog posted on 03/06/12

Cross linked story with fthebanks.org

“Matt Taibbi speaking at an Occupy Wall Street day of action, February 29th, 2012. He wrote this article for OWS, and passed it out to the crowd. It’s an informative and urgent call to action for Americans from all walks of life. We are happy to be the first to publish it.”

There are two things every American needs to know about Bank of America.

The first is that it’s corrupt. This bank has systematically defrauded almost everyone with whom it has a significant business relationship, cheating investors, insurers, homeowners, shareholders, depositors, and the state. It is a giant, raging hurricane of theft and fraud, spinning its way through America and leaving a massive trail of wiped-out retirees and foreclosed-upon families in its wake.

The second is that all of us, as taxpayers, are keeping that hurricane raging. Bank of America is not just a private company that systematically steals from American citizens: it’s a de facto ward of the state that depends heavily upon public support to stay in business. In fact, without the continued generosity of us taxpayers, and the extraordinary indulgence of our regulators and elected officials, this company long ago would have been swallowed up by scandal, mismanagement, prosecution and litigation, and gone out of business. It would have been liquidated and its component parts sold off, perhaps into a series of smaller regional businesses that would have more respect for the law, and be more responsive to their customers.

But Bank of America hasn’t gone out of business, for the simple reason that our government has decided to make it the poster child for the “Too Big To Fail” concept. Because it is considered a “systemically important institution” whose collapse would have a major, Lehman-Brothers-style impact on the economy, two consecutive presidential administrations have taken extraordinary measures to keep Bank of America in business, despite a staggering recent legacy of corruption schemes, many of which were simply overlooked by regulators.

This is why the question of whether or not Bank of America should remain on public life support is so critical to all Americans, and not just those millions who have the misfortune to be customers of the bank, or own shares in the firm, or hold mortgages serviced by the company. This gigantic financial institution is the ultimate symbol of a new kind of corruption at the highest levels of American society: a tendency to marry the near-limitless power of the federal government with increasingly concentrated, increasingly unaccountable private financial interests.

The inevitable result of that new form of corruption is this bank, whose continued, state-supported existence should naturally outrage all Americans, be they conservative or progressive.

Conservatives should be outraged by Bank of America because it is perhaps the biggest welfare dependent in American history, with the $45 billion in bailout money and the $118 billion in state guarantees it’s received since 2008 representing just the crest of a veritable mountain of federal bailout support, most of it doled out by the Obama administration.

For instance, with its own credit rating hovering just above junk status, Bank of America has been allowed to borrow tens of billions of dollars against the government’s credit rating using little-known bailout programs with names like the Temporary Liquidity Guarantee Program. Since the crash of 2008, it’s also borrowed billions if not trillions in emergency, near-zero interest rate loans from the Federal Reserve – it took out $91 million in rolling low-interest financing from the Fed on just one day in January, 2009.

Conservatives believe that a commitment to free market principles and limited government will lead us out of our economic troubles, but Bank of America represents the opposite dynamic: a company that is kept protected from the judgments of the free market, and forces the state to expand to take on its debts.

Last summer, for instance, the Bank – in order to satisfy creditors who were nervous about the enormous quantity of risky assets on its balance sheet – decided to move some $73 trillion (that’s trillion, with a T) in exotic derivative bets from one end of the company into the federally-insured, depository side of the bank.

This move, encouraged by the Obama administration, put the American taxpayer on the hook for an entire generation of irresponsible gambles made by another failed investment firm that should have gone out of business, but was instead acquired by Bank of America with $25 billion in taxpayer help – Merrill Lynch.

When did we make it the job of the taxpayer to buy failed companies, and rescue companies from their own bad decisions? How is that conservative?

Meanwhile, if you’re a progressive, Bank of America is the ultimate symbol of modern predatory capitalism. This company has knowingly sold hundreds of billions of worthless securities to unions and pension funds (New York state filed two different lawsuits against Bank of America and its subsidiaries on behalf of its pension fund, one of which was settled for $624 million) brazenly overcharged its depositors (it was forced to pay customers $410 million in restitution for bogus overdraft charges), and repeatedly lied to its shareholders (most notoriously, it lied about billions in losses on Merrill Lynch’s books before asking shareholders to approve its merger with the firm).

Moreover, Bank of America has ruthlessly preyed upon millions of homeowners, throwing them out on the street on the strength of doctored, “robosigned” paperwork created through brazenly illegal practices they helped pioneer — the firm sped struggling families to foreclosure court using perjured affidavits produced in factory-like fashion by the hundreds or thousands every day, with full knowledge of management. Through the firm’s improper use of an unaccountable private electronic mortgage registry system called MERS, it also systematically evaded millions of dollars in local fees, forcing some communities to cut services and raise property taxes.

Even when caught and punished for its crimes by the authorities, Bank of America has repeatedly ignored court orders. It was one of five companies identified in two separate investigations earlier this year that were caught continuing the practice of robosigning, even after promising to stop in a legally binding consent decree. Last summer, the state of Nevada sought to terminate a settlement over mortgage abuses it had entered into with Bank of America after it found the company was brazenly violating the agreement, among other things raising payments and interest rates on mortgage customers, despite the fact that the settlement only allowed them to modify loans downward.

Over and over again, we see that leveling fines and punishments at this bank is not enough: it simply ignores them. It is the very definition of an unaccountable corporate villain.

Companies like Bank of America are a direct threat to national security, for many reasons. For one thing, they drive smaller, more honest banks out of business: since the market knows the federal government will never let Bank of America fail, it charges less to lend the bank money. That gives Bank of America, despite its near-junk credit rating, a competitive advantage over a smaller, regional bank that might have a better credit rating, but doesn’t have the implicit support of the federal government.

Worse still, stock market investor dollars that normally would go to more customer-friendly, more creative, and more commercially dependable firms will instead continue to flow to Too-Big-To-Fail behemoths like Bank of America, as buying stock in a company with implicit state support will be considered almost a safe-haven investment, like buying gold or Treasury bills.

This robs more deserving and ingenious entrepreneurs of scarce capital, and also encourages existing companies to pour resources not into better performance and increased productivity, but into lobbying and government influence. The result will be fewer Googles and Apples, more bad banks, and more campaign contributions for politicians.

Moreover, we’ve seen throughout our history that when criminal organizations are not punished, they tend to be encouraged to commit more crimes. Five years from now, our government’s decision to avoid jailing Bank of America executives for their roles in the vast robosigning program may result in a situation where no court document of any kind can be trusted, as companies will realize that it is cheaper and easier to simply invent legal affidavits than to draw them up properly and accurately.

What will your defense be against a future lawsuit for a credit card debt or a foreclosure, when your bank walks into court with a pile of invented documents? Will you wish then that you’d fought harder for Bank of America to be punished now?

And the state’s decision to allow Bank of America to pay a middling, $137 million fine for the rigging of bids for five years of municipal bond issues – a very serious crime that robbed taxpayers of millions in revenue, and incidentally is exactly the sort of thing we used to put mobsters in jail for, when the rigged contracts were for cement instead of bonds – may mean that down the road, all municipal bond issues will be rigged.

In recent years, Too-Big-To-Fail banks like Bank of America and Chase and Wells Fargo have been caught rigging the bids for financial services in dozens of municipalities nationwide. Worse, these same banks have repeatedly been let off the hook by regulators, who rarely seek jail sentences for the offenders, and more often simply apply fractional fines to the companies caught. This behavior, if left unchecked, will ultimately mean that we will all have to pay more for our roads, our traffic lights, our sewers, in fact all public services, as the banker’s secret bonus will soon become an institutionalized part of the invoice. And it’ll be our fault, because we didn’t do anything about it now.

The only way to prevent this kind of slide to total lawlessness is to break this unhealthy relationship between bank and government. It would be a great sign of America’s return to healthier capitalism if we could allow one of the worst of public-private monsters, Bank of America, to sink or swim on its own, in the free market.

We don’t want Bank of America to fail. Our position is, it already is insolvent, and already has failed – and only our tax dollars, and our government’s continued protection, is keeping that failure from becoming more common knowledge. There are many opinions about the nature of modern American capitalism. Some think the system is no longer able to meet the needs of ordinary people and needs to be radically overhauled, while others like it just the way it is.

But one thing that everyone on this spectrum of beliefs can agree upon is that our system doesn’t work when corrupt companies, companies that should fail in the free market, are kept alive by the government. When we allow that, what we get is a system that is neither capitalism nor socialist, but somewhere more miserably in between – a bureaucratic state in which profit is not tied to performance, but political power.

We have to break that cycle, and we can. Even with the enormous levels of state support, Bank of America has been teetering on the edge of collapse for years now. In December of 2011, its share price briefly dipped below $5, a near-fatal event in the firm’s history. The market has reacted violently to bad news about the bank on multiple occasions in the last year – after news of layoffs, after hints that the government might not bail the bank out completely in the event of a collapse, and after significant new lawsuits were filed. Each of these corrections nearly sent the company into a tailspin, but it was always rescued in the end by the widespread belief that Uncle Sam would bail it out in the event of a collapse.

We need to put a dent in that belief. We need to convince politicians and investors alike to allow failure to fail.

– Matt Taibbi, February 29th, 2012, Occupy Wall Street

Youtube below posted by Piggybankblog:

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March 3rd, 2012

Attorney General Catherine Cortez Masto

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Morgan Stanley Exec Charged With Hate Crime

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Piggybankblog posted on 03/03/12

Piggybankblog posted picture

Cross linked story with bloomberg

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William Bryan Jennings, Morgan Stanley’s bond-underwriting chief in the U.S., was charged with a hate crime in the stabbing of a New YorkCity cab driver of Middle Eastern descent over a fare.

Mohamed Ammar said the banker attacked him Dec. 22 with a 2½-inch blade and used racial slurs after a 40-mile ride from New York to the banker’s $3.4 million Darien, Connecticut home.

Jennings, who had attended a bank holiday party at a boutique hotel in Manhattan before hailing the cab, refused to pay the $204 fare upon arriving in his driveway, the driver said. When Ammar threatened to call the local police, Jennings said they wouldn’t do anything to help because he pays $10,000 in taxes, according to a report by the Darien police department.

Ammar, a native of Egypt, said he then backed out of the driveway to seek a police officer. The banker called him an expletive and said “I’m going to kill you. You should go back to your country,” according to the report, filed in state court in Stamford. A fight ensued as they drove through Darien, and Jennings, 45, allegedly cut Ammar, 44, police said.

The banker, who eventually fled the cab and turned himself in two weeks later after a vacation in Florida, was charged with second-degree assault, theft of services and intimidation by bias or bigotry. He faces as long as 5 years in prison on the assault charge.

 

Put on Leave

Pen Pendleton, a spokesman for New York-based Morgan Stanley (MS), said yesterday that Jennings, who is free on $9,500 bond and is set for a March 9 court appearance, has been put on leave.

The banker has worked at Morgan Stanley during his entire career in the securities industry, starting in 1993, according to the Financial Industry Regulatory Authority.

Now co-head of North American fixed-income capital markets, he worked his way up from associate; vice president, and then principal, for debt capital markets; to executive director forinvestment banking and then managing director for fixed income capital markets. He is a graduate of Williams College and received a master’s in business from Northwestern University.

Ammar, an American citizen who immigrated to the U.S. in 1994, is a resident of the Astoria section of the New York Cityborough of Queens. He is married and has three children, he said yesterday in a phone interview. Ammar has been driving yellow cabs since the Sept. 11, 2001, terrorist attacks cut business for a limousine service he had operated starting in 1997, he said.

 

Called Police

He told police Jennings flagged him down in front of Ink48, a hotel on Manhattan’s West Side. The hotel confirmed there was a Morgan Stanley party that night, which Jennings said he had went to following a charity event.

The banker appeared “drunk,” the driver said, according to court documents.

Jennings told police that, while he had been drinking throughout the afternoon, he wasn’t “highly intoxicated,”according to the police report. The executive said he had hosted the charity auction for Morgan Stanley until 6 p.m. before heading to the bank’s holiday party at the hotel’s rooftop bar.

He left the party sometime before 11 p.m. and headed to the street, where he was supposed to be met by a car service, Jennings said. He hailed Ammar’s cab after the livery car didn’t appear, according to the report.

Ammar said Jennings agreed on the fare and told him he would pay cash. Jennings fell asleep during the trip, the driver said. Once at the destination, though, Jennings said “he did not feel like paying” because he was already home, Ammar told police.

 

Threatened Him

Ammar told officers Jennings threatened him, and that he feared for his safety. He backed out of the driveway with Jennings still in the cab. Ammar said he had tried to call 911 but was hampered by poor cellular reception in the wealthy Fairfield County suburb.

As he drove off, Ammar said, Jennings pulled the knife and began stabbing him through the open partition that divided the front and rear of the cab. Ammar said he tried to defend himself by using his right hand to block the opening, and then pulled over and dialed 911 again, as Jennings got out and fled, police said.

Jennings told Darien police the cab driver accidentally cut his hand while attempting to block the banker from calling the police himself on his cell phone, according to the report. Continue reading story

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Movin On Up | Kamala Harris’ Brother-in-law Replaces Thomas Perrelli, Becomes Third In Command At DOJ

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Piggybankblog posted on 03/02/12

Cross linked story with 4closurefraud.org

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Attorney General Appoints Tony West as Acting Associate Attorney General and Stuart Delery as Acting Assistant Attorney General for the Civil Division

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Bank Fees Quietly Coming Back Even After Backlash

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Piggybankblog posted on 03/02/12

Piggybankblog posted picture

Cross linked story with huffington post

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NEW YORK — Big banks, facing declining revenues and a regulatory climate that leaves them fewer creative ways to make money, are quietly introducing or experimenting with fees that are sure to outrage customers.

Bank of America was shouted down by angry customers last fall when it tried to impose a $5 monthly fee for using a debit card. JPMorgan Chase and Wells Fargo backed off plans to impose their own fees.

But the major banks have imposed or are testing other fees:

_ Since November, Wells Fargo has charged $15 a month for some checking accounts unless customers have three accounts with the bank, maintain a minimum balance of $7,500 or have a Wells Fargo mortgage.

_ Some Citibank customers are being charged $20 a month unless they keep $15,000 in their accounts, up from $6,000 before December. They’re also being dinged with a $2 fee for using non-Citi ATMs if their balance falls below the minimum.

_ Bank of America, even after a backlash last fall when it tried to impose a $5 monthly fee for debit card transactions, is testing a menu of checking accounts in Georgia, Massachusetts and Arizona with monthly fees of $6 to $25.

Banks aren’t charities, and they say they need to make money, or at least cover the cost of doing business. Consumer groups – and customers, too, it’s safe to assume – have a less forgiving view. – continue reading

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California AG announces homeowner bill of rights

 

Piggybankblog posted on 03/01/12

Piggybankblog posted picture

Cross linked with reuters.com

(Reuters) – California’s attorney general Kamala Harris on Wednesday proposed a homeowner bill of rights that she said will guard against a repeat of widespread mortgage abuses among America’s lenders.

The move comes weeks after Harris played a key role in orchestrating a $25 billion settlement between states and big banks over illegal shortcuts in foreclosures.

Harris, a Democrat, announced six bills designed to protect homeowners and tenants against predatory lending practices and irregular or illicit foreclosures.

Her proposed legislation included one provision sure to be fiercely opposed by lenders – a $25 fee paid by loan servicers every time a notice of default is recorded. The fee would be deposited into a fund to finance the prosecution of real estate fraud in California, Harris said.

“California communities and families are being devastated by the mortgage and foreclosure crisis. We must ensure the deceptive practices that caused it will never happen again,” Harris said at a press conference in Sacramento, the state capital.

Harris predicted a fierce lobbying campaign by lenders against her proposals. But the bill of rights should not encounter major legislative hurdles as both chambers of the California statehouse are in Democratic control, and the governor, Jerry Brown, is a Democrat.

Earlier this month Harris emerged as a central player in a $25 billion settlement between America’s five major banks and federal and state officials over irregular and illegal foreclosure practices.

Out of the $40 billion in total benefits that are expected to flow from the $25 billion settlement, California is set to emerge with some $18 billion, Harris claims, although details of the settlement have yet to be released.

On Tuesday, Harris also intensified her fight against Fannie Mae and Freddie Mac, the government-backed mortgage giants, over their foreclosure procedures.

In California the entities control more than 60 percent of the mortgage market and were not part of the $25 billion national settlement announced earlier this month.

While the big banks suspended foreclosures for a period after it emerged that officials had been filing irregular paperwork to evict homeowners, Fannie and Freddie have refused to suspend any foreclosures.

Harris called on them to halt foreclosures until they had undertaken a study into whether reducing the size of loans, rather than forcing homeowners in mortgage arrears to leave their properties, was a better course of action.

Edward DeMarco, head of the Federal Housing Finance Agency, which regulates Fannie and Freddie, has resisted “principal reductions” for borrowers behind on their payments, despite the Obama administration’s support for the idea.

Appearing before a Senate housing panel on Tuesday, DeMarco said writing down mortgages would not be beneficial to Fannie and Freddie and was the least effective way to help homeowners.

Harris has repeatedly called on him to resign, saying he has not done enough to help struggling homeowners.

(Reporting By Tim Reid; Editing by Bob Burgdorfer)

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In South Carolina, Bank Of America Takes A Piece Of State Income Tax Returns

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Piggybankblog posted on 02/29/12

Piggybankblog posted picture

Cross linked story with huffington post

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This year South Carolina income tax refunds will arrive on prepaid debit cards unless taxpayers specifically opt for a check or direct deposit.

The change could potentially save South Carolina as much as $1 million in printing and mailing costs this year, state projections indicate. And for the nearly 200,000 South Carolina households that do not have bank accounts, a prepaid debit card offers an end run around check-cashing fees and protects against the risk of holding so much cash.

But the biggest winner could be Bank of America, which will issue the prepaid cards and stands to collect an untold amount in fees from card users and merchants who own the stores where the cards may be used. The arrangement allows the Charlotte, N.C. bank to charge some card users fees as high as $10 per transaction. And unlike ordinary debit cards linked to a bank account, there are no caps on the fees banks can charge merchants when customers use prepaid debit cards.

The South Carolina Department of Revenue’s decision is part of a larger movement inside government. In 41 states, unemployment benefits are issued via prepaid debit card. Nearly every state issues food stamp and cash welfare benefits on prepaid debit or similar cards. Even the federal government will stop issuing traditional social security checks early next year. Government agencies stand to save millions while banks stand to gain much more.

The nation’s largest banks have been eager to help government agencies make the transition to prepaid debit cards, industry analysts say. The reason: banks hungry to replace revenue lost to new financial regulation stand to collect millions in small fees from multiple card users and merchants.

Bank of America declined to answer detailed questions about the way that prepaid debit cards are most often used or the bank’s projected earnings from the tax refund cards. But the bank insists the potential fees won’t hit many customers.

“There are no [card user] fees for many typical uses of the card,” Jefferson George, a Charlotte-based Bank of America spokesman said in an email. George provided a link to a story describing critics of South Carolina’s newest prepaid card option as overwrought.

Prepaid cardholders can visit a bank teller anywhere a Visa logo is displayed and, during their first visit, remove their entire tax refund at no cost, according to the fees listed on the South Carolina Department of Revenue’s web page. They can also use the card to make purchases in stores.

If a card user decides to gradually access their refund at a teller — one way to avoid walking around with large amounts of cash or get around ATM limits — they will face a $10 fee each time. At an ATM, the fee is $2.50 for bypassing one of the more than 300 Bank of America ATMs in South Carolina. That’s a problem for some rural South Carolina residents and families without cars.

The average tax refund in South Carolina was $837.44 last year. Many ATMs have maximum daily withdrawal limits typically under $1,000. Plus, card users will have to figure out how to withdraw the last few dollars from their card; most ATMs only allow withdrawals in increments of $10 or $20. Card users that request cash back at a store register will likely encounter similar limits.

And at some gas stations and other stores, when a prepaid debit card is used, the store charges the card user the amount due and holds additional money as a security deposit for a few days after the purchase is made.

These aren’t simply hypothetical experiences.

In 2010, when the state’s unemployment agency launched the prepaid debit card option, state officials and the bank assured the public that with typical use, unemployed people would not pay fees to access their benefits. But under the initial terms of the deal, some South Carolina residents wound up paying ATM fees each time they needed to access cash or for calling customer service. They faced limits or security deposits while using their prepaid debit card that were not described in materials provided by the bank or state, The Huffington Post reported in November. (The customer service fee has since been eliminated.)

State officials said they have not tracked how much customers or merchants have paid Bank of America in fees on unemployment benefits. The bank has declined to provide these figures.

But documents obtained through a Freedom of Information Act request by The Huffington Post reveal that Bank of America aimed to generate such fees from at least $40 million in transactions in one year. The bank offered to pay South Carolina a one-time $35,000 “resource allocation” payment if the state awarded the contract to Bank of America and signed up enough people for the unemployment prepaid debit card to meet that goal.

South Carolina officials hope that about 350,000 people will receive tax refunds on prepaid cards this year.

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Moral Hazard: A Tempest-Tossed Idea

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Piggybankblog posted on 02/27/12

Piggybankblog posted picture

Cross linked story with nytimes.com

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THE reports outraged America: In the wake of Hurricane Katrina, people who fled the ravaged Gulf Coast were spending disaster relief, paid for by taxpayers, on tattoos, $800 handbags and trips to topless bars.

It turned out that few, if any, Katrina evacuees actually did any such thing. A vast majority used debit cards issued by FEMA to buy necessities like food and clothing. But the damage was done: FEMA swore that it would never hand out money like that again.

Behind this brouhaha was an idea that Americans seem particularly preoccupied with. It is called “moral hazard” — an obscure insurance term that has taken on new currency in our troubled economy. We’ve heard a lot about moral hazard lately, first in connection with the bailouts for big banks, and now with efforts to help homeowners who got in over their heads.

Moral hazard sounds like the name of a video game set in a bordello, but in economic terms it refers to the undue risks that people are apt to take if they don’t have to bear the consequences. In other words, if the money is free, why not spend it on a designer purse? If you know that you’ll be bailed out, why not roll the dice on some tricky mortgage investments — or splurge on a home that you can’t really afford?

Moral hazard became part of the national conversation in the financial crisis of 2008, when ordinary Americans wondered why they should rescue banks that helped drive the economy off a cliff. Now those same banks point to moral hazard to explain why they can’t do more to help people with mortgages. And it’s not just banks — the Tea Party movement was inspired by outrage over a government plan to, as Rick Santelli put it in a famous rant on CNBC, “subsidize the losers’ mortgages.”

The cherished American ideal of self-reliance has a flip side: discomfort with the idea of bailouts and safety nets. The notion that even a small portion of such aid might find its way to the undeserving can be enough to scuttle support, or restrict help so drastically that few can use it. The specter of moral hazard haunts a basic tension in American life: to what extent are people responsible for their own problems? The more trouble you’re in, moral hazard suggests, the less we should help.

Bankers say that generously easing loan terms or reducing mortgages outright would only encourage homeowners who can pay to pretend they can’t. It would also, the bankers say, send a dangerous message: a financial commitment isn’t really a commitment. Economists and policy makers say the bankers are right — but only to a point. Shaun Donovan, the secretary of the Department of Housing and Urban Development, said that there was a “nugget of truth” to the moral hazard argument. But he also said that only about 10 or 15 percent of Americans who can still pay their mortgages try to walk away from their debt. Most troubled homeowners, like the Katrina victims, are genuinely hard up.

Kamala D. Harris, the attorney general of California, is adamant that homeowners are not looking to abuse the system. “I have met with these families,” she said, “and every single one of them wants to pay to stay in their homes.”

Still, the $26 billion deal that authorities struck with banks this month over foreclosure abuses — a main element of which will require the banks to reduce homeowner debt — angers some. Homeowners who keep paying their mortgages, even if their homes have lost value, reasonably wonder why neighbors who weren’t as responsible are getting help.

On the other hand, the problems in the housing market are a problem for all of us. Many economists and housing experts agree that the debt that now looms over homeowners is holding back a broad recovery.

Since the settlement was announced, pressure has mounted for Fannie Mae and Freddie Mac, the mortgage giants whose loans are not eligible for the deal, to allow debt relief for their borrowers as well. But concerns over moral hazard, among other things, have held them back.

MORAL hazard has long been used to explain why social safety nets like welfare, unemployment insurance and workers’ compensation should be less generous. It is almost always applied to the recipients, rather than the providers, of such benefits. A lot of energy has gone into arguing that higher workers’ comp payments, for example, make workers careless. Far less is said about how lower workers’ comp invites moral hazard for employers by, say, making them less attentive to workplace safety.

Economists have longcomplained that moral hazard could easily be described in more neutral language, like “misaligned incentives.” But the term, with its implied judgment, has stuck.

It seems to have originated in the 19th-century insurance industry. (Hazard was a popular game of dice.) Insurers drew a bright line between natural hazards, like storms, and moral hazards, like playing with matches, that stemmed from what the 1867 edition of the Aetna Guide to Fire Insurance called “carelessness and roguery.”

Today, insurers battle moral hazard with co-pays and deductibles. If you have health insurance, you are, based on the theory of moral hazard, less likely to avoid smoking, and more likely to go to the doctor for a common cold. But in a 2005 article in The New Yorker, titled “The Moral Hazard Myth,” Malcolm Gladwell noted that people with insurance do not check into hospitals for their enjoyment, and that people without insurance forgo preventive care that could save thousands of dollars. Moral hazard also overlooks the noneconomic costs of risky actions like smoking — costs like ruined lungs, suffering and death.

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Warren Buffett On Housing Market: I Was ‘Dead Wrong’

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Piggybankblog posted on 2/25/12

Cross linked story huffingtonpost.com

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OMAHA, Neb. — Billionaire investor Warren Buffett said Saturday that he was “dead wrong” with a prediction that the U.S. housing market would begin to recover by now, but he remains optimistic about the nation’s economy.

In his annual letter to Berkshire Hathaway shareholders, Buffett said he is sure housing will recover eventually and help bring down the nation’s unemployment rate. But he did not predict when that will happen.

Investors eagerly await the letter from Buffett, 81, the so-called Oracle of Omaha, who built a roughly $44 billion fortune by following a steadfast, no-nonsense investing strategy.

Buffett said housing “remains in a depression of its own,” but he predicted, in typical plainspoken style, that the housing market will come back because some human factors can’t be denied forever.

“People may postpone hitching up during uncertain times, but eventually hormones take over,” he wrote. “And while `doubling-up’ may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure.”

The housing prediction proved painful for Berkshire Hathaway. It owns more than 80 subsidiaries, including the Geico insurance company and See’s Candy, and five of them rely heavily on construction activity.

Those businesses, which include Acme Brick, Clayton Homes and Shaw carpet, generated pre-tax profits of $513 million last year. That’s well off the $1.8 billion those companies added to Berkshire in 2006.

Berkshire’s insurance companies took $1.7 billion in catastrophe losses last year, including from the earthquake and tsunami in Japan. Berkshire reported only $154 million in underwriting profit, down from $1.3 billion the previous year.

But several of Berkshire’s larger non-insurance businesses – Burlington Northern Santa Fe railroad, MidAmerican Energy, Marmon Group, Lubrizol and Iscar – all generated record earnings in 2011.

That helped Berkshire as a whole to generate $10.3 billion in net income, or $6,215 per Class A share, last year, down from nearly $13 billion, or $7,928 per share, in 2010.

A Class A share of Berkshire stock, which has never been split by the company, traded for $120,000 on Friday. Its more affordable Class B shares traded for about $80.

Buffett reassured Berkshire shareholders that the company has someone in mind to replace him eventually, but did not name the successor. He emphasized that he has no plans to leave.

Glenn Tongue, a managing partner at T2Partners investment firm, said he was struck by the fact that Buffett chose to deal with the succession topic as one of the first items in his letter.

“I think this was a forceful and stronger attempt to put this issue to bed,” Tongue said.

Buffett offered a couple of details about Berkshire’s succession planning in this year’s letter. Investors have long worried about who will replace Buffett as Berkshire chairman and CEO.

Buffett said the Berkshire board is enthusiastic about the executive it has picked and said there are two good back-up candidates.

“When a transfer of responsibility is required, it will be seamless, and Berkshire’s prospects will remain bright,” Buffett said.

Previously, Buffett had said only that the board had three internal candidates for the CEO job. Berkshire plans to split Buffett’s jobs into three parts to replace him with a CEO, a chairman and several investment managers.

Even though the successor wasn’t named, stockbroker and author Andy Kilpatrick said the way Buffett described the person makes him more confident that the leading candidate is Ajit Jain, who runs Berkshire’s reinsurance division.

“The more I think about it, the more I think we have a successor,” said Kilpatrick, who wrote “Of Permanent Value: The Story of Warren Buffett.”

Besides Jain, the other Berkshire managers believed to be possible successors as CEO are Greg Abel, president and CEO of MidAmerican; Tony Nicely, chief executive of Geico; and Burlington Northern Santa Fe CEO Matt Rose.

Berkshire has also cleared up some succession questions over the past two years by hiring two hedge fund managers, Todd Combs and Ted Weschler. Buffett said those two have the “brains, judgment and character” to manage Berkshire’s entire portfolio eventually.

Buffett said Combs built a $1.75 billion portfolio last year and Weschler is in the process of doing the same.

Buffett said he spent $67 million last fall buying back Berkshire stock for the first time since taking over the firm in 1965 because he believed it was undervalued. He said he regrets buying out shareholders at prices less than what the stock is worth.

Buffett has authorization to buy back stock anytime it is selling for less than 110 percent of its book value.

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Online:

Berkshire Hathaway Inc.: www.berkshirehathaway.com

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Bank of America Breaks With Fannie Mae

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Piggybankblog posted on 02/24/12

Piggybankblog posted picture

Cross linked story with nytimes.com

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Bank of America said Thursday that it would no longer sell new mortgages to Fannie Mae, underscoring tensions in a fight between giants of the home loan market over billions in losses in the housing bubble.

The latest move represents a major escalation in a protracted legal battle over how many defaulted mortgages Bank of America will have to buy back from Fannie because the original loans had not conformed to proper underwriting standards, market experts said.

“In mortgage circles, it’s pretty big,” said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. “It would be fairly extreme for a small or midsized lender to do this, but for a major lender, it’s very extreme.”

As one of the large government-sponsored mortgage finance enterprises, Fannie Mae takes mortgage loans from banks and packages them into securities that can be sold to investors or held on their own balance sheet. Fannie Mae backs about 40 percent of all mortgages in the United States.

Bank of America was Fannie’s third-largest provider last year, according to Inside Mortgage Finance. The bank originated $156.1 billion in mortgages last year, of which $37.7 billion were sold to Fannie, the trade publication said.

Bank of America insisted its customers would not be hurt by the decision, and said it can make up for the loss of Fannie as a backer by turning to Freddie Mac or Ginnie Mae, other government-sponsored mortgage buyers; the private sector; and by deploying its huge balance sheet.

“This decision will not affect the credit available to our customers, and we will rely on other sources of liquidity to continue to ensure we are lending to our customers and supporting the housing market recovery,” said Lawrence Di Rita, a spokesman for Bank of America. He added that the bank would continue to participate in assisting homeowners, including through the federal government’s loan modification program.

Bank of America agreed in January 2011 to buy back $2.5 billion in soured mortgages from Fannie and Freddie, but that deal left the door open to future claims from Fannie. Bank of America also reached an $8.5 billion deal with private investors to cover repurchase claims last June, but that accord is the subject of another legal fight.

Bank of America does not break out how much it has faced in claims from each company, but it has recorded losses on $9.2 billion worth of loans made from 2004 to 2008 that were later acquired by Fannie and Freddie.

Mr. Cecala said that while consumers should not feel the effects of the move in terms of access to credit, the absence of Fannie Mae as a backer could make Bank of America’s mortgage terms and rates less competitive in the future. A spokesman for Fannie Mae declined to comment.

Bank of America revealed the decision in a filing with the Securities and Exchange Commission on Thursday. The direct cause was the dispute over the repurchases, but it comes as Bank of America is reducing its overall size and streamlining its business, and shrinking its mortgage business in particular.

Meanwhile, Fannie and Freddie face questions over what role they will play in the housing market, as policy makers in Washington prepare to overhaul the government’s relationship with the mortgage industry.

Bank of America ranked as the nation’s second-largest originator of home loans for all of 2011, with an 11.6 percent market share, but by the fourth quarter it had slipped into fourth place behind Wells Fargo, JPMorgan Chase and Citigroup, according to Inside Mortgage Finance. Wells, in particular, has been an aggressive competitor, picking up much of the slack in the market and now accounting for one out of every four mortgage originations.

Bank of America, once the nation’s largest bank by assets, has been steadily shrinking its balance sheet, and now ranks second to JPMorgan Chase. Many of its problems stem from the disastrous 2008 decision to buy Countrywide Financial, a subprime mortgage lender that caused Bank of America to record more than $30 billion in losses.

Investors are concerned that Fannie and Freddie, along with private investors, will force Bank of America and other giant mortgage lenders to repurchase tens of billions in mortgages that later defaulted, arguing they were not made with adequate documentation or proof of income, or otherwise failed to conform to proper underwriting standards.

Bank of America and its competitors have argued that many homeowners defaulted because of unemployment, the weak economy and other factors, not errors in the origination process.

Still, repurchase fears weighed on Bank of America shares in particular last year, and at one point Bank of America’s stock fell below $5 a share. Its shares closed at $8.02 on Thursday, up 7 cents.

John Wright says: (Not part of article) “Ummmm myself the other people here on piggybankblog might have defaulted because of there not being adequate documentation or proof of income, or otherwise failed to conform to proper underwriting standards. Their potentially irregular, fraudulent, unethical, and simply unsafe mortgage practices hurt the price of all the responsible homeowners homes. You aww that is what happens when you give a Taco Bell window worker a 2 million dollar home. (Wink)

Plus Bank of fooling America really might not own many Americans loans like they might pretend they do. This is because there is most likely a break in the chain of title! It is potential extortion!

Liar! Liar! Bank on fire! “

So Fannie Mae is right!

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National Mortgage…Fiasco?

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Piggybankblog posted on 02/22/12

Piggybankblog posted picture

Cross linked story with theinvestigativefund.org

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On February 9, to much fanfare, President Obama announced an approximately $25 billion National Mortgage Settlement with five of the country’s largest banks, JP Morgan Chase, Bank of America, Ally/GMAC, Wells Fargo, and Citi. It is the largest multi-state settlement regarding the mortgage meltdown since the $8.68 billion Countrywide Settlement in 2008. But the excitement is misplaced — it is not clear yet whether the deal has been finalized, and the actual settlement that the federal government and 49 attorneys general have apparently reached with the banks has not been released.

The ostensible purpose of the settlement is to resolve violations of federal and state law and to help a percentage of the 11 million borrowers who are in debt to the tune of more than $700 billion. In addition, the settlement is to provide aid to those who have lost their houses because mortgage servicers working for the banks filed incomplete, and potentially fraudulent, foreclosure documents.

However, according to Prentiss Cox, a professor at the University of Minnesota Law School, the $25 billion national mortgage settlement may end up functioning more as loss mitigation for the five banks than as relief for underwater borrowers.

The former Assistant Attorney General and manager of the Consumer Enforcement Division in the Minnesota Attorney General’s Office, Cox said in an interview last week, “I think that the money could be entirely illusory. It is the same mistake we made with HAMP [the Home Affordable Modification Program]. It is all the same problem — we do a program that has some general incentives to it and then we leave it up totally to the lenders as to who gets the money and how the money is allocated.”

Indeed, there already appear to be major holes in the settlement. One of the most outrageous is that the banks may be allowed to receive taxpayer subsidies for their cooperation. Last week, the Financial Times reported that the settlement’s provisional agreement contained a clause which allows the banks to count loans made under the taxpayer-subsidized federal HAMP toward compliance with the new settlement. If that provision is indeed part of the final settlement, it means that the banks would be eligible to receive taxpayer-financed incentives for making loan modifications under a settlement intended to resolve allegations that they broke federal and state laws. But that means the banks may receive financial incentives simply for agreeing to pay for their alleged wrongdoing.

This past weekend, however, New York Times columnist Joe Nocera reported that both Attorney General Tom Miller of Iowa, one of the leaders of the settlement talks, and the U.S. Department of Housing and Urban Development, the lead federal agency involved, said that the Financial Times got the story wrong. (Without the final settlement in hand, it is one word against another.)

Then there is the audit by San Francisco county officials of 382 foreclosures, which recently found that almost all of the foreclosures examined involved legal violations or suspicious documentation. According report for the audit, the National Mortgage Settlement does not address suspicious patterns of activity that indicate mortgage servicers may knowingly have filed false or forged foreclosure documents, which is a felony in the state of California.

So where should homeowners in danger of losing their houses go for information about the still–to-be-released settlement? The press release at the US Department of Justice website is a good start. It directs visitors to www.nationalmortgagesettlement.com, with the disclaimer that it takes no responsibility for the accuracy or legality of the information on that website.

According to the settlement’s executive summary, the banks have won a broad release from future litigation by state attorneys general and the US Department of Justice for claims related to mortgage servicing abuses, foreclosure preparation, and loan origination.

In exchange, lawmakers have wrung a $25 billion commitment from the banks. However, the only hard money that the banks have to pay is $5.2 billion, which will be devoted to foreclosure relief, housing programs, and paltry $2000 payments to borrowers who were improperly foreclosed upon. Refinancing for borrowers who are current on their payments but cannot refinance because of they owe more than their homes are worth, accounts for another $3.5 billion

The remaining $17 billion will not come directly out of bank coffers, but will in fact be in the form of write-offs on loans, many of which the banks likely would not be able to collect. This includes credits for principal write-downs for underwater borrowers and waiving of deficiency judgments on people who have already been foreclosed upon.

Seventeen billion dollars may sound impressive, but don’t break out the champagne yet. Homeowners in this country still owe $700 billion more than their houses are worth. Consider that most recent statistics from the Treasury Department show that close to 1.6 million borrowers are seriously delinquent on their mortgages and another 1.3 million are in some stage of foreclosure. It is clear that the banks and investors behind the mortgage-backed securities that own these troubled mortgages will have to write off a lot more than $17 billion by the time this crisis is over, with or without a settlement.

Another major component of settlement is what the executive summary terms “comprehensive reforms of the mortgage servicing industry,” which includes the overhauling of servicing standards.

One of the new servicing standards is that “information in foreclosure affidavits must be personally reviewed and based on competent evidence.” Another: “Holders of loans and their legal standing to foreclose must be documented and disclosed to borrowers.” Sounds great. But why wasn’t this already standard operating procedure at these five banks?

In addition to the seemingly generous terms extended to the banks, the executive summary is short on specifics. We don’t know whether the settlement contains major loopholes for the banks to escape liability for violating the settlement’s terms. We don’t know if the terms of the actual modifications that the borrowers receive will be so bad that many of them might re-default the following year — as has been the case with other loan modification programs. And we don’t know what the financial hit will be for the banks versus the investors in those mortgage-backed securities, which include major pension funds, that actually own most of the mortgages at issue.

That the actual settlement document is not public is a major problem, because the proverbial devil is always in the details. I discovered that in 2010 when I was working on an Investigative Fund article for the Nation magazine about the troubled 2008 Countrywide Settlement. The settlement was intended to resolve a predatory lending lawsuit that 11 state attorneys general had brought against the country’s largest lender.

Press releases issued in 2008 claimed that the Countrywide settlement would provide up to $8.68 billion in relief to an estimated 400,00 borrowers.

However, the 2008 settlement, which some media accounts touted as the “largest loan modification in history,” brought more consumer complaints than relief. From what we know thus far about the National Mortgage Settlement, it appears to be in danger of turning into a fiasco similar to the Countrywide Settlement.

The Countrywide Settlement promised some of the very things that current National Mortgage Settlement is aiming for: principal write-downs, the waiver of late and prepayment fees, and the suspension of foreclosure activity on affected mortgages. And even though the Countrywide Settlement was riddled with loopholes, Bank of America still appeared to be in violation of its lenient terms.

In fact, in December 2010, two months after my article was published, the states of Arizona and Nevada sued Bank of America for predatory mortgage servicing and charged that the banks had violated the Countrywide settlement by foreclosing on borrowers while their modifications were pending. In their complaints, the two attorneys general also charged that Bank of America used inaccurate and deceptive practices to deny modifications to borrowers who were supposed to be receiving help under the Countrywide Settlement

How widespread were the violations of the 2008 Countrywide Settlement? That we will never know. Although there were numerous complaints, only two of the forty-four states plus the District of Columbia that eventually signed onto the settlement sued the bank for violating its terms.

However, the current National Mortgage Settlement appears to have put an end to further law enforcement investigations over alleged violations of the 2008 Countrywide Settlement.

On February 9, the same day they announced that they were joining the National Mortgage Settlement, both the Arizona and the Nevada state attorneys general also announced that they were entering into separate settlements with Bank of America, under which they agreed to resolve their lawsuits over the bank’s alleged violations of the earlier Countrywide Settlement.

Under Nevada’s settlement, the eligible Nevada homeowners are supposed to receive $750 million in first and second lien principal reduction and the bank is obligated to suspend foreclosure sales of any borrower eligible for modifications.

The current attorney general of Arizona, Tom Horne, who inherited the Countrywide lawsuit from his predecessor, settled with Bank of America for a paltry $10 million fine, which is to be used for a variety of initiatives such as enhancing efforts to prevent and prosecute financial fraud.

Terry Goddard, the former Arizona attorney general who was one of the lead negotiators of the Countrywide Settlement, and who two years later sued Bank of America over its alleged violations of the settlement, was quoted in the New York Times yesterday about the unresolved issues.

“The problems haven’t been rectified and borrowers continue to get the runaround,” she said. “It was not successful, and I hope it’s a powerful lesson about what needs to be done in this agreement. Trust, but verify.”

Let’s hope that the new National Mortgage Settlement does not have as many loopholes as the Countrywide settlement did. And let’s hope that state attorneys general are more aggressive in pursuing any potential violations of the current settlement’s terms. However, based upon the information available thus far, there is no reason to be optimistic about the ability of the new settlement to meet its objectives of helping distressed homeowners.

 

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New York’s U.S. Bankruptcy Court Rules MERS’s Business Model Is Illegal

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Piggybankblog posted on 02/19/12

Piggybankblog posted picture

Ha! Ha! Made You Look!

Older Article 02/16/11

But Read Martin Andelman below

Cross linked with Huffingtonpost.com

United States Bankruptcy Judge Robert Grossman has ruled that MERS’s business practices are unlawful. He explicitly acknowledged that this ruling sets a precedent that has far-reaching implications for half of the mortgages in this country. MERS is dead. The banks are in big trouble. And all foreclosures should be stopped immediately while the legislative branch comes up with a solution.

For some weeks I have been arguing that MERS is perpetrating foreclosure fraud all across the nation. Its business model makes it impossible to legally foreclose on any mortgaged property registered within its system — which includes half of the outstanding mortgages in the US. MERS was a fraud from day one, whose purpose was to evade property recording fees and to subvert five centuries of property law. Its chickens have come home to roost.

Wall Street wanted to transform America’s housing sector into the world’s biggest casino and needed to undermine property rights to make it easier to run the scam. The payoffs were bigger for lenders who could induce homeowners to take mortgages they could not possibly afford. The mortgages were packaged into securities sold-on to patsy investors who were defrauded by the “reps and warranties” falsely certifying the securities as backed by top grade loans. In fact the securities were not backed by mortgages, and in any case the mortgages were sure to go bad. Given that homeowners would default, the Wall Street banks that serviced the mortgages needed a foreclosure steamroller to quickly and cheaply throw families out of the homes so that they could be resold to serve as purported collateral for yet more gambling bets. MERS — the industry’s creation — stepped up to the plate to facilitate the fraud. The judge has ruled that its practices are illegal. MERS and the banks lose; investors and homeowners win.

Here’s MERS’s business model in brief. Real estate property sales and mortgages are supposed to be recorded in local recording offices, with fees paid. With the rise of securitization, each mortgage might be sold a dozen times before it came to rest as the collateral behind a mortgage backed security (MBS), and each of those sales would need to be recorded. MERS was created to bypass public recording; it would be listed in the county records as the “mortgagee of record” and the “nominee” of the holder of mortgage. Members of MERS could then transfer the mortgage from one to another without all the trouble of changing the local records, simply by (voluntarily) recording transactions on MERS’s registry.

A mortgage has two parts, the “note” and the “security” (not to be confused with the MBS) or “deed of trust” that is usually just called the “mortgage”. The idea behind MERS was that the “note” would be transferred from seller to purchaser, but the “mortgage” would be held by MERS. In fact, MERS recommended that the “note” be held by the mortgage servicer to facilitate foreclosures, but in practice it seems that the notes were often lost or destroyed (which is why all those Burger King Kids were hired to Robo-sign “lost note affidavits”).

At each transfer, the note and mortgage are supposed to be “assigned” to the new owner; MERS claimed that because it was the “mortgagee of record” and the “nominee” of both parties to every transaction, there was no need to assign the “mortgage” until foreclosure. And it argued that since the old adage is that the “mortgage follows the note” and that both parties intended to assign the notes (even if they did not get around to doing it), then the Bankruptcy Court should rule that the assignments did take place in some sort of “virtual reality” so that there is a clear chain of title that allows the servicers to foreclose.

The Judge rejected every aspect of MERS’s argument. The Court rejected the claim that MERS could be both holder of the mortgage as well as nominee of the “true” owner. It also found that “mortgagee of record” is a vague term that does not give one legal standing as mortgagee. Hence, at best, MERS is only a nominee. It rejected MERS’s claim that as nominee it can assign notes or mortgages — a nominee has limited rights and those most certainly do not include the right to transfer ownership unless there is specific written instruction to do so. In scarcely veiled anger, the Judge wrote:

“According to MERS, the principal/agent relationship among itself and its members is created by the MERS rules of membership and terms and conditions, as well as the Mortgage itself. However, none of the documents expressly creates an agency relationship or even mentions the word “agency.” MERS would have this Court cobble together the documents and draw inferences from the words contained in those documents.”

Judge Grossman rejected MERS’s arguments, saying that mere membership in MERS does not provide “agency” rights to MERS, and agreeing with the Supreme Court of Kansas that ruled “The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant — their description depended on which part they were touching at any given time.”

He went on to disparage MERS’s claim that since in legal theory the “mortgage follows the note”, the Court should overlook the fact that MERS separated them. He stopped just short of saying that by separating them, MERS has irretrievably destroyed the clear chain of title, although he hinted that a future ruling could come to that conclusion:

“MERS argues that notes and mortgages processed through the MERS System are never “separated” because beneficial ownership of the notes and mortgages are always held by the same entity. The Court will not address that issue in this Decision, but leaves open the issue as to whether mortgages processed through the MERS system are properly perfected and valid liens. See Carpenter v. Longan, 83 U.S. at 274 (finding that an assignment of the mortgage without the note is a nullity); Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2009) (“[I]n the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable”).”

That would mean not only the end of MERS, but also the end of the banks holding unenforceable mortgages because they were not, and cannot be, “perfected”. MERS and the banks screwed up big time, and there is no “do over” — there is no valid lien on the property, so owners have got their homes free and clear.

There have been numerous court rulings against MERS — including decisions made by state supreme courts. What is significant about the US Bankruptcy Court of New York’s ruling is that the judge specifically set out to examine the legality of MERS’s business model. As the judge argued in the decision, “The Court believes this analysis is necessary for the precedential effect it will have on other cases pending before this Court”. In the scathing opinion, Judge Grossman variously labeled MERS’s positions as “stunningly inconsistent” with the facts, “absurd, at best”, and “not supported by the law”. The ruling is a complete repudiation of every argument MERS has made about the legality of its procedures.

What is particularly ironic is that MERS actually forced the judge to undertake the examination of its business model. The case before the judge involved a foreclosed homeowner who had already lost in state court. The homeowner then approached the US Bankruptcy Court to argue that the foreclosing bank did not have legal standing because of MERS’s business practices. However, by the “Rooker-Feldman” doctrine (or res judicata), the US Bankruptcy Court is prohibited from “looking behind” the state court’s decision to determine the issue of legal standing. Hence, Judge Grossman ruled in the bank’s favor on that particular issue.

Yet, MERS’s high priced lawyers wanted to push the issue and asked for the Judge to rule in favor of MERS’s practices, too. So while MERS won the little battle over one foreclosed home, it lost the war against the nation’s homeowners. The Judge ruled against MERS on every single issue of importance. And it was MERS’s stupid arrogance that brought it down.

As I predicted two weeks ago, MERS would be dead within weeks. Judge Grossman has driven the final stake through its black heart. The half of America’s homeowners whose mortgages are registered at MERS have been handed a “get out of jail free” card. Wall Street has no right to foreclose on their property. The tide has turned. It won’t be easy, but homeowners in those states with judicial foreclosures now have Judge Grossman on their side. Those in the other states (just over half) will have a tougher time because they can lose their home before they ever get to court. But the law is still on their side — foreclosure by members of MERS is theft — so class action lawsuits may be the way to go.

MERS is dead, but can the banks survive? There are two separate issues. First, there are the “reps and warranties” given by the mortgage securitizers (Wall Street investment banks) to the investors (pension funds, GSEs, PIMCO, and so on). We now know that a quarter to a third of the mortgages bundled to serve as backing for the securities did not meet stated quality. Worse, we also know that the banks knew this — they hired third parties to undertake “due diligence” to check quality. This was not done to protect the investors, rather, the purpose was to strengthen the bargaining position of the securitizers, who were able to reduce the prices paid for the mortgages. Now, the investors are suing the banks for restitution–forcing them to cover the losses and buy-back the bad mortgages at original price. To add insult to injury, even the NYFed is suing them. That is a lot like having your parents sue you for their inadequate parental oversight of your behavior.

The second issue is that the mortgages backing the securities were supposed to be placed in Trusts (affiliates of the securitizing banks), with the Trustee certifying not only that the mortgages met the reps and warranties but also that the documents were up to snuff and safely locked away. We know they were not. As mentioned above, MERS told the servicers to hold the notes, and many or most of them were destroyed or lost. Further, the notes were separated from the mortgages — making them null and void. In any case, they are not at the Trusts. This means the MBSs are not backed by mortgages, meaning the MBSs are unsecured debt. MERS’s business model ensures that. So, again, the banks must take back the fraudulent securities — paying off the investors.

What can Wall Street do? Well, I suppose the “help wanted” signs are already up at MERS and Wall Street banks: “Needed: Burger King Kids to Robo-sign forged quasi-professional-looking docs”. The problem is that even with tens of thousands of Robo-Kids, Wall Street will not be able to pull off a vast criminal conspiracy on the necessary scale. Think about it: 60 million mortgages, each sold ten times, means 600 million transactions and assignments that have to be forged. MERS’s documentation was notoriously sloppy, relying on voluntary recording by members. The Robo-Kids would have to go back through a decade of records to manufacture a paper trail that would convince now-skeptical judges that there is a clear chain of title from the first recording in the public record through to the foreclosure. It ain’t going to happen.

The only other hope is that Wall Street can call in its campaign contribution chips and get Congress to retroactively legalize fraud. That is what they do in those dictatorships that protestors are now bringing down in the Middle East. Is Washington willing to take that risk, just to please its Wall Street benefactors?

The Judge’s Decision: click here

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Mandelman Matter Article 02/19/12

 

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BofA Said to Freeze Moynihan’s Salary, Deny Bonus as Stock Awards Decline

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Piggybankblog posted on 02/19/12

Piggybankblog posted picture

Cross linked with bloomberg.com

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Bank of America Corp. cut Chief Executive Officer Brian T. Moynihan’s compensation for 2011, granting him no cash bonus and freezing his salary, said a person briefed on the executive’s awards.

The bank is holding Moynihan’s salary at $950,000, said the person, who spoke on condition of anonymity because the Charlotte, North Carolina-based bank hasn’t yet announced hispay package. It gave him $5.9 million in restricted stock units, mostly linked to future performance, the firm said yesterday in a filing. For 2010, the grant had surpassed $9 million.

Bank of America, the second-biggest U.S. lender, plunged 58 percent in New York trading last year as Moynihan sold $33 billion in assets and announced 30,000 job cuts amid stagnant revenue and rising costs from defective mortgages. The stock has climbed 44 percent this year, the best performance in the 30-company Dow Jones Industrial Average (INDU), on optimism that the firm will benefit as the U.S. economy improves.

“They’re setting an example from the top, saying, ‘You know what? If the company doesn’t do well, our CEO isn’t going to do as well,’” said Jeanne Branthover, a managing director at Boyden Global Executive Search Ltd. in New York. “Yes, these guys make a lot of money, but they have to wait it out with their deferred equity, like everyone else.”

The bank had agreed to award Moynihan, 52, a $9.05 million restricted-stock bonus last February, according to a regulatory filing the previous month. This year, it gave him 228,302 in stock units that pay out in 12 monthly installments and 532,705 in performance-contingent units that he may receive as early as March 2015 if performance hurdles are met, according to yesterday’s filing. The value is based on the stock’s closing price on the award date, Feb. 15.

2011 Profit

Bank of America posted net income of $1.4 billion for 2011, fueled by the divestiture of holdings including a Chinese lender, compared with a $2.2 billion loss the previous year when the firm booked $12.4 billion in impairments.

Co-chief operating officer Thomas K. Montag was awarded stock units totaling $8.1 million, most of which are performance linked awards, according to a filing. David Darnell, the other COO, got stock units valued at $4.2 million. Chief Financial Officer Bruce Thompson’s stock award is valued at $6.2 million.

Unlike Moynihan, the managers will also get cash bonuses, which will be disclosed in a filing next month, the person said.

The company told investment bankers in January to expect compensation that averages 25 percent less than last year, people with knowledge of the plans said then. Moynihan may trim expenses in investment and corporate banking, trading and wealth management by as much as $3 billion after targeting $5 billion in cuts to retail operations.

Gorman, Dimon

Morgan Stanley (MS) reduced CEO James Gorman’s 2011 pay by 25 percent from a year earlier as JPMorgan Chase & Co. (JPM) held CEOJamie Dimon’s steady, said people with knowledge of the plans. Both firms are based in New York.

Dimon may receive $23 million, more than double Gorman’s $10.5 million, said the people, who spoke on condition of anonymity because the total pay amounts aren’t public. Dimon got about $17.3 million in stock and options, while Gorman received $5.1 million of shares, according to Jan. 20 regulatory filings.

Goldman Sachs Group Inc. CEO Lloyd Blankfein saw his restricted stock bonus fall by 44 percent to $7 million for a year in which earnings dropped by 47 percent on a decline in fixed-income trading revenue.

JPMorgan surpassed Bank of America as the largest U.S. lender by assets last year and was the most profitable U.S. bankas net income climbed 9 percent to about $19 billion.

Goldman Sachs (GS) fell 46 percent in New York trading last year, while Morgan Stanley declined 44 percent and JPMorgan slipped 22 percent.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story:David Scheer at dscheer@bloomberg.net.

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Lehman Bros subpoenas Geithner in JP Morgan row

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Piggybankblog posted on 12/17/12

Piggybankblog posted picture

Cross linked story with marketwatch.com

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Lehman Brothers Holdings Inc. LEHMQ and its creditors late Thursday said they want to subpoena Treasury Secretary Timothy Geithner to question him under oath over allegations J.P. Morgan Chase & Co., (JPM) illegally siphoned billions of dollars from the collapsing investment bank in the days before it filed for the largest bankruptcy in U.S. history.

In a filing accompanying Lehman’s filing, made in U.S. District Court in Washington, Lehman’s official committee of unsecured creditors said Geithner has thus far refused to comply with an Aug. 9, 2011, subpoena, and it wants a court to force Geithner to give a deposition by a March 16 deadline.

“Despite being a crucial fact witness on these issues, Secretary Geithner has refused to appear at a deposition in accordance with a valid subpoena issued by the Committee,” the committee’s lawyers said in the filing. Geithner was president of the Federal Reserve Bank of New York at the time of the Lehman collapse.

The Treasury Department didn’t immediately respond to a request for comment.

The committee said in its filing that it also wants to question then-Treasury Secretary Hank Paulson, but that he too has turned the request down. It said it will handle the Paulson matter separately.

Geithner, the committee said in its filing, had more than 35 phone conversations with then-Lehman Chief Executive Richard Fuld and more than 10 with J.P. Morgan Chief Executive Jamie Dimon in the week before Lehman’s September 2008 bankruptcy filing.

Lawyers for Lehman subpoenaed Geithner as part of its civil lawsuit against J.P. Morgan claiming Dimon and other top executives used inside knowledge to take advantage of Lehman as its financial state worsened.

The weekend before Lehman’s monumental bankruptcy filing, the Geithner-led New York Fed became the meeting place for Wall Street titans and Washington policy makers trying to sort things out.

“The Department of the Treasury now turns its back on the President’s commitment to transparency as it refuses to provide the creditors of Lehman Brothers with key evidence from the current Secretary of the Treasury, Timothy F. Geithner, who was a crucial witness to certain key events at issue in the creditors’ litigation with JPMorgan Chase Bank, N.A,” the committee said in its court papers.

Lehman Brothers sued J.P. Morgan in U.S. Bankruptcy Court in Manhattan in May 2011, charging the bank demanded over $8.6 billion in collateral in September 2008, triggering a liquidity squeeze that contributed to Lehman Brothers’ collapse. The estate is hoping to recoup billions in collateral the bank demanded, and other damages.

J.P. Morgan, which served as Lehman’s clearing bank, countersued, claiming Lehman tricked it into lending $70 billion in the days following the investment bank’s September 2008 collapse and left it with toxic securities that Lehman’s own traders referred to as “goat poo.”

J.P. Morgan says Lehman led it to believe it would be repaid the $70 billion advanced to keep Lehman’s broker-dealer business afloat in the days surrounding Lehman’s historic bankruptcy filing and the sale of its core business to Barclays PLC (BCS). Both sides, in court filings, have denied wrongdoing.

In recent months discovery has heated up with both sides issuing subpoenas. Lehman wants to question Min Euoo-sung former chairman and chief executive of Korea Development Bank, a key potential bidder for Lehman weeks and months leading up to its bankruptcy, to testify under oath. Lehman claims J.P. Morgan sought to advise KDB with respect to the Lehman deal and its lawyers want to ask Min if J.P. Morgan may have learned that it wasn’t going to bid for Lehman before that information became public, prompting the bank’s call for more collateral.

Meanwhile lawyers for J.P. Morgan have sought to question former executives at Lehman’s European subsidiary about the investment bank’s decision-making process, including information about Lehman’s infamous “goat poo,” otherwise known as RACERS securities.

Lehman’s Chapter 11 filing on Sept. 15, 2008, marked the largest U.S. bankruptcy case filed.

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Why No Investigation?

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Piggybankblog posted on 02/16/12

Picture posted by piggybankblog

Cross linked story with creditslips.org

Posted by Adam Levitin

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Here’s a bombshell: the San Francisco City Assessor commissioned a serious audit of foreclosure documentation filed in the past few years. The audit examined 400 foreclosures. It found problems with 85% of them, often multiple problems. What’s more, some of the problems are pretty serious as they implicate not only borrowers’ rights, but the integrity of mortgage-backed securities and the property title system.

The San Francisco City Assessor’s audit also serves as a benchmark for evaluating the Federal-State servicing settlement. The San Francisco City Assessor managed to accomplish in a few months what the Federal government and state Attorneys General weren’t able to do in nearly a year and a half with far greater resources at their disposal: perform a credible investigation of foreclosure documentation with serious implications about the securitization process in general. That’s a lot of egg on the face of Shaun Donovan, Eric Holder, Tom Miller, et al. The SF City Assessor report shows that it really wasn’t so hard for a motivated party to undertake a serious investigation. And that raises the question of why the largest consumer fraud settlement in history proceeded with virtually no investigation.

The lack of investigation was the compelling criticism that led the NY and DE AGs to stay out of the settlement for quite a while. I’ve never heard an answer as to why no serious investigation. As the SF City Assessor’s audit shows, the documentation is all a matter of public record. It’s not that hard to do, especially if you have the resources of the federal government. So the resources were there. The capability was there. So why no investigation? The answer has to lie with lack of motivation. Were the Feds and AGs scared of what they would find if they delved too deeply into the issue?

I hope that members of Congress will question the Attorney General and HUD Secretary the next time they show up to testify on the Hill. The issue is also worthy of a GAO or IG examination.

Now to be fair, there was a federal bank regulator review of some 2800 foreclosures and state banking supervisers did some sort of audit of Ally Financial’s practices (the results of which are not public). But these audits are only as good as what they were looking for. If the focus was on narrow robosigning–the mindless signing of documents without verify the statements therein–that’s a really different audit from what the SF City Assessor did.

The robosigning itself and similar lack of internal controls are the small potatoes. There are much more serious things in the SF City Assessor report.

First, the SFCA audit compared assignments in the public record with those that were represented to MBS investors in SEC filings. Anyone who’s been following this blog knows that this is the securitization fail problem. And the SFCA audit finds evidence aplenty of this. Curiously, the OCC foreclosure review protocols don’t include this sort of examination. Hmmmm. Wouldn’t want to find out that we’ve got a massive securitization fail problem. That could trigger another financial crisis. So let’s not look into it. If we ignore it, then Levitin and Yves Smith and others can just keep howling into the wind.

Similarly, the SFCA audit does a cross check between MERS records and foreclosure filings. As alleged in the DE AG suit against MERS, these records often don’t match. That’s a problem. Let me rephrase that: this is a HUGE problem. MERS is a self-privatization of part of a real property title system. Whatever one thinks of self-privatization of property records (reversing an Anglo-American tradition of government recordation that goes back to at least Richard I in 1194), the unreliability of the MERS system is just disasterous for real property title. As Judge Young said, MERS is the “wikipedia of land registration systems”. The SFCA audit makes that seem like a generous comparison, as Wikipedia is often more accurate. Pretending the problem doesn’t exist isn’t going to make it go away.

The SF City Assessor report is yet another indication of how thoroughly rotten the Federal-state settlement is. While I’m on the topic, though, let me add in another one: the Federal-state settlement has folded into it a settlement between HUD and Bank of America for BoA embezzling from the FHA. The price tag for this was $1B, which seems to be double counted as part of BoA’s contribution. That’s appalling. Lee Farkas went to jail for a smaller fraud on the FHA. Think anyone from BoA is going to be in the pokey?

Let me suggest this: when a federally-chartered entity commits insurance fraud on the federal government, it should lose its charter and FDIC insurance. National banks exist by the grace of the federal government. That grace can be removed. Oh wait, we can’t do that to BoA–it’s too big to fail! Stripping BoA of its charter for defrauding the government just does not compute in the bank regulator mindset, which ignores that a federal banking charter is a privilege, not a right.

So there we have it. Once again, the federal government is held captive by the banks. The Too Big to Fail problem isn’t a financial risk problem–it’s a political problem, as too-big-to-fail means too big to regulate. The administration has had three chances to deal with too-big-to-fail: the bailouts, Dodd-Frank, and now the mortgage crisis, and it has shyed away every time. It’s hard to think of a greater failing of this Administration.

Yes, the Administration did pass Dodd-Frank, which has important reforms in it, like the CFPB. But on what is really the most important financial regulatory issue–the need to end the political power of the banks, which will otherwise always be used to stymie effective financial regulation (or the administration of justice as we see here). Successful financial reform requires political reform, and breaking up the large banks is the only way we will see that political reform happen.

Note by way of comparison how the Feds brought the hammer down on Milken and Drexel for creating a junk bond bubble through a daisy chain of S&Ls (and a corrupt life insurer) that financed the destructive corporate raiding of the 1980s (and resulted in the creation of the CDO!). Drexel wasn’t Too Big to Fail, and Milken wasn’t from the same social millieu as many of the regulators. He wasn’t their classmate, he wasn’t white shoe, his lawyers hadn’t been the regulators previous, and the regulators weren’t looking for future employment with DBL. And he went to jail.

Today TBTF is a get-out-of-jail free card. But I want to emphasize that TBTF isn’t the only thing going on here. Part of the problem, I think is a social one, as our political leadership is part of the same social milieu as our financial leadership and unwilling to call out criminal acts by their peers. The white shoe firms who were having their lunch eaten by Milken had no such qualms.

In the end, despite lack of investigation, 49 AGs signed onto the federal-state deal. Some of them signed on because they were able to narrow the scope of the release and get some level of federal buy-in and support for investigations on the securitization side of the bubble. In other words, for them, this settlement is conceived of as a first step, and signing on was part of a bargain. I hope it turns out to be a wise bargain, but thus far, the settlement seems an awful lot like Swiss cheese–it’s got plenty of wholes and smells ever worse with time.

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Audit Uncovers Extensive Flaws in Foreclosures

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Piggybankblog posted on 02/16/12

Picture posted by Piggybankblog

Cross linked story with nytimes.com

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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.

Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings suggest how pervasive foreclosure irregularities may be across the nation.

The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.

Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.

Kathleen Engel, a professor at Suffolk University Law School in Boston said: “If there were any lingering doubts about whether the problems with loan documents in foreclosures were isolated, this study puts the question to rest.”

The report comes just days after the $26 billion settlement over foreclosure improprieties between five major banks and 49 state attorneys general, including California’s. Among other things, that settlement requires participating banks to reduce mortgage amounts outstanding on a wide array of loans and provide $1.5 billion in reparations for borrowers who were improperly removed from their homes.

But the precise terms of the states’ deal have not yet been disclosed. As the San Francisco analysis points out, “the settlement does not resolve most of the issues this report identifies nor immunizes lenders and servicers from a host of potential liabilities.” For example, it is a felony to knowingly file false documents with any public office in California.

In an interview late Tuesday, Mr. Ting said he would forward his findings and foreclosure files to the attorney general’s office and to local law enforcement officials. Kamala D. Harris, the California attorney general, announced a joint investigation into foreclosure abuses last December with the Nevada attorney general, Catherine Cortez Masto. The joint investigation spans both civil and criminal matters.

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.

California has been among the states hurt the most by the mortgage crisis. Because its laws, like those of 29 other states, do not require a judge to oversee foreclosures, the conduct of banks in the process is rarely scrutinized. Mr. Ting said his report was the first rigorous analysis of foreclosure improprieties in California and that it cast doubt on the validity of almost every foreclosure it examined.

“Clearly, we need to set up a process where lenders are following every part of the law,” Mr. Ting said in the interview. “It is very apparent that the system is broken from many different vantage points.”

The report, which was compiled by Aequitas Compliance Solutions, a mortgage regulatory compliance firm, did not identify specific banks involved in the irregularities. But among the legal violations uncovered in the analysis were cases where the loan servicer did not provide borrowers with a notice of default before beginning the eviction process; 8 percent of the audited foreclosures had that basic defect.

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.

Banks involved in buying and selling foreclosed properties appear to be aware of potential problems if gaps in the chain of title cloud a subsequent buyer’s ownership of the home. Lou Pizante, a partner at Aequitas who worked on the audit, pointed to documents that banks now require buyers to sign holding the institution harmless if questions arise about the validity of the foreclosure sale.

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.

The report contradicted the contentions of many banks that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. “We can deduce from the public evidence,” the report noted, “that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question.”

Audit report results: Click here

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February 13th, 2012.

 

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Lanny Breuer, Eliot Spitzer, Mary Jo White, & Neil Barofsky | Crooks o

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Piggybankblog posted on 02/13/12

Piggybankbog posted picture

Cross linked 4closurefraud.org.

More than three years after the one of the worst financial crises in U.S. history, the government has been severely criticized for its failure to criminally prosecute senior executives at the Wall Street banks that helped cause the meltdown. Have the feds been soft on banking execs? Are laws on the books inadequate for holding people criminally accountable? Has the Department of Justice been too timid or too intimidated by the complexity of the potential misconduct? Or is it the case that actions of the individuals who caused the crisis were potentially reckless and immoral, but not unlawful? Does the lack of prosecutions reflect a weakness in our system of justice? Or does it demonstrate the strength of a system that has resisted the political pressure to scapegoat executives who may have committed no crimes?

A panel of senior criminal justice officials, including a former New York State Attorney General, a former United States Attorney, and the current head of the Department of Justice’s criminal division, takes on these questions and more.

Panelists:

Lanny Breuer, Assistant Attorney General, U.S. Department of Justice Eliot Spitzer, Former Governor and Attorney General for the State of New York Mary Jo White, Partner, Debevoise & Plimpton LLP; Former U.S. Attorney for the Southern District of New York

Moderator:

Neil Barofsky, Senior Fellow, Center on the Administration of Criminal Law; Adjunct Professor, NYU School of Law

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Bank Accounts Are Hard To Close, And Even Harder To Keep Closed

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Piggybankblog posted 02/11/12

Piggybankblog posted picture

Cross linked huffingtonpost.com

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Some customers who closed bank accounts at Bank of America last fall recently received an unwelcome surprise: Their accounts reopened. Perhaps even more perplexing for these customers: It’s the bank’s policy.

Bank of America will reactivate a closed account if an electronic deposit or credit, like an automatic bill payment, is made. “If we receive something, we may reopen the account to accept the item, and the account may be subject to associated fees,” Betty Reiss, a Bank of America spokeswoman, told The Huffington Post. “We remind [customers of that] when they are closing the account.”

JPMorgan Chase also will automatically reopen a customer’s account after it’s closed if the bank receives a deposit. The bank, which recently eliminated its policy to charge customers an account-closing fee, indicates in its fine print that “any closed account may be automatically reopened if we receive a deposit to the account.” JPMorgan Chase declined to further comment.

Complaints about closed accounts coming back from the dead have shown up on blogs and message boards for several years. But so far the complaints have not led to a policy change.

For customers, an old account reopening can be unexpected. At best, someone might happily learn that a former employer directly deposited some cash into the account. But if an account is reopened, however, and there’s no money there, a person could get hit with an overdraft fee. Plus in both cases, a maintenance fee could apply.

And it’s hard to say when these customers would finally realize their banks accounts have returned from the dead.

To be sure, for most people, a conversation with a branch manager might clear up any fees, but the aggravation is essentially an additional — and hidden — cost for banking customers.

At other banks, even shuttering an account has obstacles. Accounts that are open and closed within 90 days, often come with an additional price tag. Sovereign Bank, Citibank, PNC Bank and U.S. Bank charge $25, reported the Boston Globe. Some smaller banks can charge as much as $50.

That it is as hard to kill a bank account as it is to slay a zombie is not new news, but the various banks’ policies are becoming increasingly important as more consumers switch banks. Bank of America reported a 20 percent jump in account closings in the fourth quarter, CEO Brian Moynihan recently said.

Banks and consumer experts agree that it is the responsibility of an account holder to transfer all regularly scheduled transactions conducted via electronic deposits and payments to a new account. Even for customers who have gone through hoops to disentangle themselves from their big bank, the practice of reopening accounts can leave a very unwanted aftertaste.

One former Bank of America customer complained on Dec. 7 at CustomerServiceScoreboard, an open Web forum for consumer complaints, that a direct deposit of a paycheck reopened her account after she moved her funds to a credit union:

I closed my account and went to a local credit union. After I had closed my account, I had some difficulty because a paycheck was direct deposited to my old, closed account. When I called Bank of America about this, they told me the funds had not been deposited and that they could not hold them for me when they were received. Instead the funds would be sent back to my employer. Working with my HR department, I found out that the funds had actually been deposited and that the customer service representative had simply not taken the time to look it up and lied to me about it.

 

While it may be easy to point the finger at BofA and Chase, these banks are not the only ones. Commerce Bank, a midsize bank in the Midwest also has a policy of reopening a checking account if an electronic deposit is posted to it.

“Although they are well-intentioned, customers frequently forget to cancel an automatic activity, especially if it doesn’t occur every month,” stated Patty Kellerhals, director of core retail banking at Commerce Bank via email. “So if there is activity within 45 days of a zero balance event, we view the account as open or active and honor the deposit agreement in place on the account.”

As the web of electronic payments and credits gets more elaborate for consumers, they find it increasingly difficult to keep track of all of them. This kind of stickiness is one reason Rep. Brad Miller (D-N.C.) last fall introduced the Freedom and Mobility in Consumer Banking Act, which would require all banks to grant customers the right to close an account at any time, regardless of whether the balance is positive, zero or negative and keep it closed unless a customer specifically requested a reopening.

“There is not real healthy competition because it is so hard to move from one back to another,” said a spokesman from Rep. Miller’s office. “You have automatic deposits and [banks] have no responsibility that they end up in right place.”

The policy at some institutions of reopening closed accounts underscores how deeply banks can sink their teeth into customers. As figures from last fall’s so-called exodus from big banks revealed, there was a gap between talking about breaking up and actually doing so. From September to December, more than 5 million people switched financial institutions, according to Javelin Research and Strategy, a financial services research firm.

That number is on par with those from other quarters, but last fall, something different happened. The reason for switching banks changed. Eleven percent, or 610,000, of bank switchers said they moved explicitly because of not liking their big bank, and mentioned Bank Transfer Day, a protest against large financial institutions. But compared with the amount of buzz for the movement — 22 million hits on the phrase on Google — the actual number of people who moved was relatively small.

“That points to how difficult it is to move from one financial institution to another,” said Jim Van Dyke, a founder of Javelin.

The hunt to pinpoint banks’ rules for closing an account highlights the range of policies that banks have — and how tricky it can be to understand, as a consumer, exactly what they are at each institution.

Many banks, including Citibank and Wells Fargo, said they do not reopen closed accounts. At Wells, for example, an account is closed only when the very last penny is taken out and a customer has made an explicit request to close the account. Representatives from TD Bank, Fifth Third Bank and PNC also said their institutions do not reopen closed accounts.

“It’s in [banks'] financial interest to make it as difficult as possible to close a bank account and move elsewhere,” said Jean Ann Fox, director of financial services for the Consumer Federation of America, a consumer lobby group in Washington, D.C. “[Consumers] need clear rights to be able to close an account and go elsewhere. That is something CFPB should be looking at and it would be addressed by Rep. Brad Miller’s [bill].”

Have you had trouble closing a bank account? Please share your experience with catherine.new@huffingtonpost.com.

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Banks in $25B deal to settle foreclosure abuses

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Piggybankblog posted on 02/09/12

Piggybankblog posted picture

Cross linked story with cbsnews.com

(MoneyWatch) Government officials have struck a $25 billion settlement with five of the nation’s largest lenders to address mortgage-servicing and foreclosure abuses committed by the companies.

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The agreement, which the U.S. Justice Department announced Thursday after more than 16 months of negotiations involving all 50 U.S. states, federal authorities and the banks, provides financial relief for homeowners and toughens standards for how financial firms service mortgage loans. Joining the deal are the country’s largest mortgage servicers: Ally Financial, Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC).Under the terms of the deal, mortgage servicers must allocate $20 billion to various types of mortgage relief for borrowers. At least $10 billion of that total will go toward reducing the principal for borrowers who are behind, or at risk of defaulting on, their loans at the time of the settlement and who owe more on their mortgages that their homes are worth. A minimum of $3 billion will go toward helping homeowners who also are “underwater,” but current on their loans, refinance at lower interest rates. Up to $7 billion will be allocated toward offering other forms of aid, including forbearance of principal for unemployed borrowers, “short sales,” and financial assistance for homeowners whose homes are foreclosed. In addition, loan servicers must pay $4.25 billion to the states and $750 million to the federal government.

Heart of Darkness

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Piggybankblog posted on 02/08/12

Piggybankblog posted picture

Cross linked story with huffingtonpost.com

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The completely mind-blowing story “A Mortgage Tornado Warning, Unheeded,” by Gretchen Morgenson in the Feb. 4 New York Times, along with a ProPublica story a couple of weeks back on how Freddie Mac had placed multi-billion dollar bets for years that paid off if homeowners stayed trapped in bad mortgages, are major reminders of the need to conduct full-scale investigations of the fraud perpetrated by big financial institutions. It’s a Jupiter-sized reminder of the need to staff up the new financial fraud task force, take the road blocks to effective investigations down, and be wary of a soft settlement on robo-signing.

Beyond those more immediate issues, though, is a far more fundamental reminder about the nature of power. When a company, and an industry, become too powerful (either in the marketplace, in the political world, or both), corruption is inevitable. The big players start to believe they can act with impunity, that they can intimidate people and break the law at will, and it will never come back to hurt them. They always assume that because of their power, they will never be caught or called out for bad behavior, and that if they are, there are plenty of ways to avoid pain: public relations people to make the bad behavior sound not so bad, lobbyists to help them change inconvenient laws, pliant regulators who will look the other way or change the rules for them, minor fines with no admission of guilt (almost always paid for by stockholders instead of the guilty party) if worse comes to worse, and bailouts by the Federal Reserve or taxpayers if the whole financial system goes down.

What we have learned with the banking meltdown is once this kind of corruption takes root in a company or a small set of companies, it keeps growing and growing until it infects not just the corporation or corporations involved, but, as in the financial system’s case in the last decade, the entire industry. In any honest book that has been done in the past four years on what happened, and there have been plenty of them, you get exactly the same story: a system utterly corrupted and out of control. The good risk managers were fired or demoted, on-target analysis (like the internal Fannie Mae legal memo Morgenson cites in her piece) was ignored, the traders trying to stay on the straight and narrow were marginalized. Everyone who raised red flags about what was going on — and there were actually plenty of them — were cast aside and laughed at. The entire culture of the industry became so deeply warped that at least in some ways, some of these companies started to operate as though fraud — multiplied several different ways — was built into the business model.

One of the foundational cornerstone ideas this country was based on was the idea of pluralism — that distributed power, checks and balances, were essential to building a democratic republic. A lot of the conventional wisdom on that fundamental idea, though was overly focused on distributed power in the workings of government alone. But founders like Madison, Jay, and Jefferson were not thinking only about government when they wrote about pluralism. They knew that if any one private interest, any one section of the country, any one business or industry, became too big and powerful, it would warp everything else. If the plantation owners of Virginia, the merchants of Boston, the Anglican Church leadership, the sea-going trading industry, or the bankers in New York got too powerful and dominated everyone else, our democracy would become warped and twisted up, and we would be in a world of trouble.

Not in everything, but definitely in this, the founders were right. The financial industry got too powerful, and they assumed and operated as if they were above the law. And the rest of us paid a huge price, and are paying it still. Not all bankers are bad people, but the system itself became corrupted by too much power, and when the system itself is rotten, the good people will be driven out, or will become worse themselves. That is why, for the sake of all of us including the bankers themselves (for I do worry about their souls), the system needs to be disinfected: the bankers that egregiously broke the law need to go to jail (making that financial fraud task force the president appointed incredibly important), and the big banks desperately need to be broken up into smaller companies that are not too big to fail.

Here’s the thing, though, because I admit I tend to have become very focused on banking since Wall Street took down our economy: it’s not just banking. Read this incredibly important and truly scary article by Barry Lynn in Harper’s. Growing monopoly or oligopoly power in industry after industry is killing off small businesses, entrepreneurialism, competition, and our democracy itself. Massive conglomerates are buying up or destroying their competitors, and using their power to dictate terms to everyone else. And for way too long our government has been passively letting it happen, or even encouraging it to happen: anti-trust laws are weakly enforced, small businesses are allowed to go out business in massive numbers, unions are broken, new technologies are not allowed on the market. Once the competition, and any check on industry power, is destroyed and one or just a few companies dominate a market so completely, corruption can’t help but set in. When a company or industry has that much power, sooner or later it is inevitable that it will be abused.

Ironically, this is one area where progressives and most of the business community — all those small businesses desperately trying to stay alive in the face of industry concentration — should be in absolute alignment. Progressives believe in a true, vibrant free-market economy, where competition flourishes, entrepreneurs innovate, and consumers have plenty of different choices. From the 1930s to the 1970s, this country encouraged that kind of competition, and partly as a result, this country, especially our middle class, was the most prosperous the world has ever seen.

Too much power creates a heart of darkness, whether for an individual or a corporation. We need to restore a country where true competition and distributed power flourish.

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Bank of America Home Loans President Barbara Desoer to retire

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Piggybankblog posted on 02/07/12

Piggybankblog posted picture

Cross linked bizjournals.com

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Bank of America said today that Barbara Desoer, president of Bank of America Home Loans, will retire “in February,” marking the departure of the bank’s highest-ranking executive from the former BankAmerica that was based in San Francisco.

Desoer told the Wall Street Journal that it was her decision to leave.

“I have given it my all,” she told the newspaper. The 59-year-old Desoer hasn’t ruled out a return to financial services.

No specific date has yet been set for her departure this month, a BofA spokesman said.

But her retirement comes as little surprise to long-time followers of the bank, who saw her demoted twice in six weeks last fall, signaling that her 34-year career at California’s largest bank was nearing an end. (In those six weeks she went from being a direct report to CEO Brian Moynihan to having her executive biography stripped from the bank’s web page of senior management bios.)

Desoer, considered one of the most powerful women in banking, was said to be among the candidates to succeed former CEO Ken Lewis before Moynihan was tapped.

My colleague Adam O’Daniel at the Charlotte Business Journal posted a copy of BofA’s announcement of her retirement as part of his report.

Last summer, on a trip to San Francisco, Desoer was the first senior BofA executive to publicly concede that purchasing troubled Countrywide Financial Countrywide FinancialLatest from The Business JournalsBank of America investors win class-action status in suit over Merrill Lynch dealSmall ‘boring’ banks new and exciting for Wall StreetArizona says Bank of America settlements hurt probeFollow this company in 2008 was a costly mistake.

“If we had not purchased Countrywide, Bank of America would probably be held out as a role model,” Desoer said in speaking to the Commonwealth Club of California in August.

Asked in an extensive interview that day with the San Francisco Business Times how much longer she might be with the bank, Desoer said she was pleased with her BofA career and planned to remain as long as there was a role for her.

Youtube posted by piggybankblog

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New York AG cancels bank settlement statement

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Piggybankblog posted on 02/07/12

Picture posted by Piggybankblog

Cross linked story with 4closurefraud.org

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WASHINGTON – New York Attorney General Eric Schneiderman late Tuesday postponed a much anticipated conference call with reporters that was set up to announce whether the state would participate in broad a settlement with five big banks over foreclosure practices. Schneiderman, who is co-chair of a new mortgage fraud task force, told reporters in late January that he was not ready to participate in state settlement negotiations. Observers had speculated that he might announce his participation. The state of New York announced Friday that it was suing Bank of America Corp. BAC +0.13% , Wells Fargo & Co. WFC +0.20% , and J.P. Morgan Chase & Co. JPM +0.05% , claiming they used an electronic mortgage database to submit false and misleading information in courts making it appear the bank had the authority to bring a case when it may not have.

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Company Faces Forgery Charges in Mo. Foreclosures

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Piggybankblog posted on 02/07/12

Piggybankblog posted picture

Cross linked story 4closurefraud.org

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One of the largest companies that provided home foreclosure services to lenders across the nation, DocX, has been indicted on forgery charges by a Missouri grand jury — one of the few criminal actions to follow reports of widespread improprieties against homeowners.

A grand jury in Boone County, Mo., handed up an indictment Friday accusing DocX of 136 counts of forgery in the preparation of documents used to evict financially strained borrowers from their homes. Lorraine O. Brown, the company’s founder and former president, was indicted on the same charges.

Employees of DocX, a unit of Lender Processing Services of Jacksonville, Fla., executed and notarized millions of mortgage documents for big banks and loan servicers over the years. Lender Processing closed the company in April 2010, after evidence emerged of apparent forgeries in these documents, a practice now called robo-signing.

Chris Koster, the Missouri attorney general, will prosecute the case. “The grand jury indictment alleges that mass-produced fraudulent signatures on notarized real estate documents constitutes forgery,” Mr. Koster said in a statement. “Today’s indictment reflects our firm conviction that when you sign your name to a legal document, it matters.”

Mr. Koster said his office’s investigation was continuing. This suggests he may hope to persuade Ms. Brown to cooperate in his investigation of the parent company. If convicted, Ms. Brown could face up to seven years in prison for each forgery count. DocX could be fined up to $10,000 for each forgery conviction.

Chris Rosenblum, a lawyer at Rosenblum, Schwartz, Rogers & Glass who represents DocX said: “We have not had an opportunity to review the indictment at this point. The company intends to enter a plea of not guilty.”

According to the indictment, Ms. Brown acted “knowingly in concert with DocX and its employees” to mislead and defraud the Boone County recorder of deeds. The documents central to the indictments were deeds of release, which eliminate a previous claim on an asset. Such releases are typically issued when a mortgage has been paid off.

Phone messages left at Ms. Brown’s home and with her lawyer were not returned Monday evening.

Since evidence of pervasive foreclosure improprieties emerged, state officials have mostly brought civil suits against the institutions and law firms that filed the fraudulent documents. Individuals in Nevada, for example, have been charged with notary fraud, but beyond that matter, criminal cases arising from foreclosure practices have been uncommon.

The Missouri grand jury found that the person whose name appeared on 68 documents executed on behalf of a lender — someone named Linda Green — was not the person who had signed the papers. The documents were submitted to the Boone County recorder of deeds as though they were genuine, Mr. Koster said.

A recent civil lawsuit against Lender Processing by the attorney general of Nevada found that former workers at one of its divisions had described their work as “surrogate signers.” One worker who was quoted in the complaint said she had been paid $11 an hour and told that her job was “to sign somebody else’s signature on documents.” The person said she had signed roughly 2,000 documents a day for months, according to the lawsuit.

In addition to deed releases, DocX surrogate signers routinely executed assignments of mortgage, which reflect changes in ownership.

The indictment is only the latest legal assault on the company and its parent, Lender Processing. In August 2011, American Home Mortgage Servicing, a large loan servicer, sued Lender Processing contending that more than 30,000 residential mortgages that it had handled across the country contained “improper execution, notarization and recording of assignments of mortgage.” DocX executed such paperwork for American Home from April 2008 through November 2009, the lawsuit said.

Last April, Lender Processing signed a consent order with the nation’s top financial regulators, agreeing to remediate improperly executed mortgage documents and to correct its default business practices. Michelle Kersch, a Lender Processing spokeswoman, said recently that the company now executed documents “with stringent controls in place” to ensure compliance with all rules.

Republished in full for educational purposes…

Copy of the indictment below…

We might win this thing yet…

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Mortgage deal faces setbacks, again

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Piggybankblog posted on 02/06/12

Picture posted on 02/06/12

Cross linked story with reuters.com

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n”>(Reuters) – A multi-state mortgage settlement in the works for more than a year will likely be pushed back again as dissident U.S. states continue to press specific concerns and ignore a Monday deadline to decide whether they will sign it.

States had been given two weeks to assess a proposed settlement, under which top U.S. banks would pay up to $25 billion in exchange for resolving civil government lawsuits about misconduct in servicing home loans and pursuing faulty foreclosures.

But on Monday, as a close-of-business deadline loomed, many states had not yet reached a decision.

Officials had hoped to announce a final settlement as early as this week. It is unclear if the Obama administration and a group of states will move ahead with a smaller settlement if holdouts continue to drag their feet.

Some states and activist groups have been concerned the proposed deal would release banks from too many claims and does not provide enough relief to homeowners.

California Attorney General Kamala Harris, whose participation would grow the size of the settlement by some $6 billion to $8 billion, was not expected to issue any statement on Monday, a person familiar with the matter said.

On Friday, Harris told Reuters she was “less concerned with the timeline than the details” of the settlement.

A New York lawsuit filed on Friday against JPMorgan Chase (JPM.N), Bank of America (BAC.N) and Wells Fargo (WFC.N) has also become a stumbling block, according to a person briefed on the negotiations.

This person said on Monday that the banks are balking at a lawsuit from New York Attorney General Eric Schneiderman that accuses them of fraud in their use of the electronic mortgage registry MERS. [ID:nL2E8D3CCR]

The lawsuit is based on claims that were expected to be resolved through the settlement.

The multi-state settlement talks are focusing on the three banks named in Schneiderman’s suit, as well as Citigroup (C.N) and Ally Financial.

Schneiderman has been a key opponent of the proposed settlement.

However, Schneiderman said January 27 that the liability releases in the draft settlement had become narrow enough so that a full investigation by a new mortgage crisis unit that he will help lead could move forward.

Jennifer Givner, press secretary for Schneiderman, declined to comment on Monday.

HOLD OUTS

Other states continued to weigh the details until the last minute.

In a statement, Nevada Attorney General Catherine Masto said her office is continuing to review the settlement and is advocating for improvements to address Nevada-specific needs.

Masto sued Bank of America last year and accused it of violating an earlier agreement meant to resolve mortgage-related claims from its Countrywide unit, and lawyers for the office are in discussions about what impact the settlement will have on the lawsuit, people familiar with the matter said.

A spokeswoman for Attorney General Tom Horne of Arizona said on Monday afternoon that Horne was still evaluating the settlement and “may decide by the end of the day.”

Even Florida Attorney General Pam Bondi who has been on the committee negotiating the deal has not publicly committed to the settlement. A spokeswoman said in a statement that Bondi “remains involved in the settlement discussions in order to reach the best resolution for Floridians and all Americans.”

And a spokesman for the attorney general in Massachusetts, Martha Coakley, who has been a critic of the proposed settlement, said her office would not have a comment on Monday.

Coakley separately sued the same banks in December and accused them of deceptive foreclosure practices, but she has not ruled out joining the multi-state settlement.

Her office has been in discussions to carve out certain foreclosure issues specific to her state, people familiar with the matter have said.

In particular, Coakley does not want the settlement to allow banks to avoid a look back at past foreclosures after Massachusetts’ highest court voided two home seizures saying the banks failed to show they held the mortgages at the time they foreclosed.

California’s Harris, too, has expressed state-specific concerns that the relief provided in the settlement go to those “most distressed” in her state, and has pressed for some certainty that the relief is regionally proportionate, according to people familiar with California’s concerns.

The state has faced some of the worst foreclosure rates in the country. One in every 31 housing units in California received at least one foreclosure filing last year, according to RealtyTrac.

Meanwhile, U.S. Housing and Urban Development Secretary Shaun Donovan has been pushing hard in recent weeks to close and sell the deal.

He spoke to left-leaning bloggers in a conference call over the weekend to convince them of the merits of the settlement.

Representatives of several other state attorneys general either declined to comment or did not respond to requests for comment.

(Reporting By Aruna Viswanatha in Washington and Karen Freifeld in New York; Additional reporting from Rick Rothacker in Charlotte and Ben Berkowitz in Boston; Editing by Tim Dobbyn)

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Foreclosure Deal Deadline Arrives as States Consider Releases

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Piggybankblog posted 02/06/12

Piggybankblog posted picture

Cross linked story with businessweek.com

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Feb. 6 (Bloomberg) — States that balked at bank liability releases in a proposed $25 billion nationwide settlement over foreclosure practices must decide by today whether its mortgage relief and reforms are worth the legal claims they’ll give up.

While some states have already announced their intention to sign the deal, others including California Attorney General Kamala Harris have yet to publicly commit in part due to terms that protect the banks from future litigation. Without Harris, the deal’s value will drop by several billion dollars, according to a person familiar with the matter.

The agreement is “beyond fixing,” said George Goehl, executive director of National People’s Action, a network of community organizations which advocates for fair lending and affordable housing.

“People are very disappointed in what this is going to be both in terms of dollars and release of claims,” Goehl said in a telephone interview. “We’re giving away the store.”

Most states don’t have the resources to go it alone and fight the banks in court, said James Tierney, director of Columbia Law School’s National State Attorneys General Program. States such as California that may reject the agreement must decide whether the time and money needed to fight for a better deal is worth it, given that the settlement provides immediate relief for homeowners, he said.

“How long does it take and how much better?” Tierney said of a state pursuing its own deal. “Is it so much better that it warrants the cost and delay?”

Sixteen Months

Today’s deadline, extended by the parties from Feb. 3, comes almost 16 months after all 50 states announced they were investigating bank foreclosure practices following disclosures that faulty documents were being used to seize homes.

Officials from a group of state attorneys general offices and federal agencies, including the Justice Department, have since negotiated terms of a proposed settlement with the five largest mortgage servicers — Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., and Ally Financial Inc. The settlement would set requirements for how the banks conduct foreclosures, provide mortgage refinancings for underwater borrowers — people who owe more on their mortgages than their homes are worth, fund loan principal reductions, and make payments to states and borrowers who lost their homes to foreclosure.

Court Approval

The accord, which must be approved by a federal judge, will allow banks to take steps toward resolving mortgage liability stemming from the housing bust. The releases protect them from legal claims tied to foreclosures, mortgage-servicing and origination of loans, said another person familiar with the deal.

The deal wouldn’t take away any individual’s right to pursue an individual or class action case, a third person said. All three declined to be identified because the talks are private.

The scope of the liability releases has been one of the biggest concerns for some attorneys general, including Harris and New York Attorney General Eric Schneiderman, who launched a separate probe of mortgage operations of banks.

Schneiderman said in an interview Jan. 27 that there were “outstanding issues” still to be resolved and declined to say whether he would sign the deal.

The liability releases wouldn’t prevent an investigation into mortgage securitization, he said. Schneiderman was named to a state-federal group that will probe the bundling of mortgage loans into securities in the run-up to the financial crisis. Shum Preston, a spokesman for Harris, and Danny Kanner, a spokesman for Schneiderman, declined to comment about whether their states were signing the national settlement.

Delaware Joined Push

Delaware Attorney General Beau Biden, who joined Schneiderman in pushing for a narrow release that doesn’t protect banks from claims that haven’t been fully investigated, won’t support the agreement as drafted because of the scope of the releases, his office said Feb. 3.

“We are continuing to review the complicated documents that we received a week ago, and are continuing to advocate for improvements to address our concerns,” Jason Miller, a Biden spokesman, said in a statement.

The settlement, meanwhile, would also require Massachusetts, Nevada and Arizona, which have sued banks involved in the talks, to settle those cases, one of the people said. Nevada and Arizona each sued Charlotte, North Carolina-based Bank of America over mortgage-servicing practices, accusing it of misleading consumers, while Massachusetts sued all five banks that are part of the proposed deal.

Massachusetts’s Coakley

Brad Puffer, a spokesman for Massachusetts Attorney General Martha Coakley declined to comment about whether the state will sign. Jennifer Lopez, a spokeswoman for Nevada Attorney General Catherine Cortez Masto, said the state hadn’t made a decision on whether to sign the deal as of Feb. 3.

Amy Rezzonico, a spokeswoman for Arizona Attorney General Tom Horne, didn’t return a call seeking comment. Iowa Attorney General Tom Miller, who is helping to lead negotiations on behalf of the states, couldn’t be immediately reached for comment.

Another incentive for states to sign is a so-called most- favored nation provision. It requires banks give those who accept the deal the benefit of any better terms later given states that opt out, two of the people familiar with the term said.

At least three states have announced their intention to sign the settlement — Connecticut, Oregon and Louisiana.

Oregon Attorney General John Kroger said in a statement last week that he decided to accept the deal, which will provide $30 million to his state and as much as $200 million in relief to Oregon homeowners, after considering the potential benefits that might come through litigation.

“I am not confident we could get a better agreement on this limited set of issues if we litigated for several more years,” Kroger said.

–With assistance from Dawn Kopecki in New York and Joel Rosenblatt in San Francisco. Editors: David E. Rovella, Michael Hytha

To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net and; Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net

To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net and; Michael Hytha at mhytha@bloomberg.net

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OCCUPY LOS ANGELES LETTER TO AG KAMALA HARRIS

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Attorney General Kamala Harris

Office of the Attorney General

1300 I Street Sacramento, CA 95814

We urge you to implement an immediate moratorium on foreclosures so you can investigate

Dear Attorney General Harris,

We appreciate and applaud the steps you have taken to ensure that justice is served to address system-wide mortgage, foreclosure and securities fraud in the State of California by implementing the Mortgage Fraud Strike Force, and by backing away from the 50-state foreclosure settlement deal currently being pushed by the banks and the Obama administration.

We urge you in the strongest of terms to remain steadfast in your refusal to accept this deal. Instead, we urge you to implement an immediate moratorium on foreclosures so you can complete your own investigation and prosecutions of fraud and securities fraud. If the banks do not comply with this moratorium, we urge you to issue injunctions.

We urge you to sue the Mortgage Electronic Registration System (MERS) for deceptive practices (as a suit brought by Attorney General Beau Biden in Delaware has done), and bar MERS from:

1. initiating any foreclosure actions in the company’s name, or via MERS in the name of a trust,
2. recording, assigning or taking any other actions on CA mortgages until the company has been audited and corrected, and insist that MERS:
3. correct the chain of title on CA mortgages recorded in county offices,
4. pay a $10,000 civil penalty for each consumer violation here

We urge you to follow in Nevada’s footsteps and support requiring banks, servicers and trustees to provide an affidavit proving a clear chain of title or face felony charges. Should the California Assembly and Senate enact a similar law, it would strengthen your enforcement authority over foreclosure fraud. The NV law has caused foreclosures to drop 88% since it went into effect in October.

We applaud your stand against the national settlement deal being brokered by the banks that makes a mockery of justice and fails to serve the communities of honest Californians. We agree that the deal is not good enough for California. It fails to serve the local governments that have watched 400 years of property law be destroyed. It fails to serve those who have been defrauded of their homes and lifesavings.

Lenders used fraud as a business model to create a system that guaranteed record profits and bonuses, while leaving a scorched earth of foreclosures and underwater mortgages.

Lenders put the ‘lie’ in liars loans, not the borrower, explains William K. Black, professor and former regulator who investigated the Savings & Loan crisis.

Credit rating agencies worked in collusion with the big banks to pass off toxic assets as highest-grade investments.

Fund managers gambled with the capital of mortgages and pension funds, putting those funds at undue risk.

The economic catastrophe that has resulted from these abuses has plunged the people of America into a plight unparalleled since the Great Depression.

In 2011, California was home to 38 of the top 100 worst hit zip codes — dominating the list of the top 100 zip codes hit hardest by foreclosures

Before any foreclosures resume, we need to see justice is served for bank-driven fraud and securities fraud. Specifically:

1. Completion of full investigation and prosecutions of lenders / banks / insurance providers / ratings agencies for mortgage, foreclosure and securities fraud throughout the system, including MERS and the companies it works with.
2. No “get out of jail free” settlement.
3. Correction of the property records.
4. Civil and criminal penalties commensurate with the vast scale of the crimes.

The financial industry through its dominance of the political and economic life of the nation executed a massive theft of private and public money. This historic crime of grand larceny and fraud must not be swept under the rug of history. It must be addressed, corrected and prevented from recurring.

Sincerely,

Occupy Activists

SOURCE: http://occupylosangeles.org

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Breaking News: Schneiderman sues J.P. Morgan and Bank of America, among others

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Piggybankblog posted on 02/03/12

Piggybankblog posted picture

Cross linked story with captialnewyork.com

Attorney General Eric Schneiderman filed suit today against a handful of the nation’s biggest banks for their role in a shared electronic registry system that served as the nominal holder of mortgages across the country.

The suit alleges that J.P. Morgan Chase, Bank of America, Wells Fargo and others used the registry, called MERS, to subvert the usual process for tracking property transfers.

“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages,” Schneiderman said in a statement. “Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law.”

Schneiderman, who was named to co-chair a federal mortgage investigation unit last month, has previously criticized the recording practices of MERS, which holds about half of the nation’s home loans.

MERS’ recording practices, which included “robo-signing,” were among the issues in a proposed 50-state settlement to which Schneiderman objected last year.

The complaint was filed in state court in Brooklyn, by attorneys in Schneiderman’s office, and does not appear to have been in conjunction with the new team of federal investigators and attorneys that Schneiderman now has at his disposal.

But the suit should reassure some of Schneiderman’s liberal supporters that his aggressive pursuit of improper mortgage practices hasn’t been tempered by his inclusion in the administration’s task force. – captialnewyork.com

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His name is ERic Schneiderman AND HE IS FIGHTING BACK!

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Freddie Mac Bets Against American Homeowners

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Piggybankblog posted on 01/30/12

Piggybankblog posted picture

Cross linked story propublica.org

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This story is not subject to our Creative Commons license.

This story was co-published with NPR News [1].

Freddie Mac, the taxpayer-owned mortgage giant, has placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates.

Freddie began increasing these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.

No evidence has emerged that these decisions were coordinated. The company is a key gatekeeper for home loans but says its traders are “walled off” from the officials who have restricted homeowners from taking advantage of historically low interest rates by imposing higher fees and new rules.

Freddie’s charter calls for the company to make home loans more accessible. Its chief executive, Charles Haldeman Jr., recently told Congress that his company is “helping financially strapped families reduce their mortgage costs through refinancing their mortgages.”

But the trades, uncovered for the first time in an investigation by ProPublica and NPR, give Freddie a powerful incentive to do the opposite, highlighting a conflict of interest at the heart of the company. In addition to being an instrument of government policy dedicated to making home loans more accessible, Freddie also has giant investment portfolios and could lose substantial amounts of money if too many borrowers refinance.

“We were actually shocked they did this,” says Scott Simon, who as the head of the giant bond fund PIMCO’s mortgage-backed securities team is one of the world’s biggest mortgage bond traders. “It seemed so out of line with their mission.”

The trades“put them squarely against the homeowner,” he says.

Those homeowners have a lot at stake, too. Many of them could cut their interest payments by thousands of dollars a year.

Freddie Mac, along with its cousin Fannie Mae, was bailed out in 2008 and is now owned by taxpayers. The companies play a pivotal role in the mortgage business because they insure most home loans in the United States, making banks likelier to lend. The companies’ rules determine whether homeowners can get loans and on what terms.

The Federal Housing Finance Agency effectively serves as Freddie’s board of directors and is ultimately responsible for Freddie’s decisions. It is run by acting director Edward DeMarco, who cannot be fired by the president except in extraordinary circumstances.

Freddie and the FHFA repeatedly declined to comment on the specific transactions.

Freddie’s moves to limit refinancing affect not only individual homeowners but the entire economy. An expansive refinancing program could help millions of homeowners, some economists say. Such an effort would“help the economy and put tens of billions of dollars back in consumers’pockets, the equivalent of a very long-term tax cut,” says real-estate economist Christopher Mayer of the Columbia Business School. “It also is likely to reduce foreclosures and benefit the U.S. government” because Freddie and Fannie, which guarantee most mortgages in the country, would have lower losses over the long run.

Freddie Mac’s trades, while perfectly legal, came during a period when the company was supposed to be reducing its investment portfolio, according to the terms of its government takeover agreement. But these trades escalate the risk of its portfolio, because the securities Freddie has purchased are volatile and hard to sell, mortgage securities experts say.

The financial crisis in 2008 was made worse when Wall Street traders made bets against their customers and the American public. Now, some see similar behavior, only this time by traders at a government-owned company who are using leverage, which increases the potential profits but also the risk of big losses, and other Wall Street stratagems. “More than three years into the government takeover, we have Freddie Mac pursuing highly levered, complicated transactions seemingly with the purpose of trading against homeowners,” says Mayer. “These are the kinds of things that got us into trouble in the first place.” Continue reading

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A Victory for the Public on Foreclosures?

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Piggybankbog posted on 01/30/12

Picture posted by Piggybankblog

Cross linked story with Rollingstone.com

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So there was big news yesterday on the foreclosure settlement front. We still have to wait and see what the final deal looks like, but there are reports out that the long-awaited settlement is a far, far better deal for the public than expected. If these reports are true, it looks like New York Attorney General Eric Schneiderman and California AG Kamala Harris have scored an enormous victory in narrowing the scope of the settlement to the point where it really only covers robosigning abuses.

According to reports (like this one in the Huffington Post), the deal will not include:

1. Criminal liability.
2. Tax liability
3. Fair lending, fair housing, or any other civil rights claim.
4. Federal Housing Finance Agency or the GSEs [Fannie Mae and Freddie Mac]
5. CFPB claims for the period after they came into existence in July 2011
6. SEC claims
7. National Credit Union Association Claims
8. FDIC claims
9. Federal Reserve Board claims
10. MERS claims

If that is true, and all of those things are out of the deal, and the banks are still exposed to liability not only for all of those things, but also for the broad range of offenses related to securitization, then $25 billion, dare I say it, might not even be a completely sucky number. It’s far less than the real liability, but it’s a much bigger sum than I ever thought would be negotiated just for robosigning.

I’m interested to see what the market reaction will be if this deal goes through. On the one hand the banks will all obtain some certaintly and relief from robosigning claims. But on the other hand, all the banks are still on the hook in other areas, nost notably putbacks of bad loans.

Score one for Schneiderman/Harris. Coupled with the news that the subpoenas have already started dropping on the securitization front, I’m almost optimistic.

p.s. let me clarify something, for readers who might mistake my meaning here. Robosigning is not a small offense. It’s not a “clerical” issue. It’s a mass-perjury issue, a tax evasion issue, a contractual fraud issue, and it’s a criminal conspiracy issue (the banks’ highest executives were engaged in planning it) and it resulted in millions of errors that resulted in untold numbers of premature foreclosures.

Robosigning had a profound and immediate impact on large numbers of actual human beings, and I don’t want people to think I’m dismissing it as unimportant. I probably also shouldn’t celebrate news like this until I see how the actual deal looks, what wording is used to narrow the deal’s purview, how homeowners and other victims will be compensated, what will be done to prevent it in the future, and so on.

But my point was that, while a gross crime and one of the more obvious (and easily provable) parts of the criminal scheme common during the mortgage bubble years, robosigning is really an ancillary part of an even more enormous fraud that went on, and is still going on, in securitization/origination. Many homeowners were victimized by robosigning, but your more common victim of bank fraud during this time was an investor in MBS — maybe even another WallStreet entity like a hedge fund or a bond insurer, maybe a foreign trade union, maybe a state worker whose pension fund lost 40% of its value because it was sold bad bonds by a too-big-to-fail bank. And the hook that snared those victims was securitization.

When I first heard about the foreclosure settlement, I thought it might contain a broad waiver for everything, including the tax evasion issues, the fair lending issues, securitization, and all the other things on that list above. If they did that, that would be TARPx10. My only point about this deal is that it appears to have been effectively negotiated down from a bloocurdling outrage to whatever it is now, which is probably something far less than that: it may still be a serious underpay, but it’s not the unreal, criminal giveaway it was originally meant to be.

And it still leaves plenty of room for criminal investigation and reform. The people who organized and supervised the robosigning could and should still be targets of criminal prosecution, deal or no deal: this won’t change that.

All I’m saying is, good for Schneiderman/Harris for holding out and preventing this settlement from being another AIG — a secret backroom bailout in which everybody at the table got the government to solve their balance sheet problems in 24-48 hours of frenzied, disorganized discussion. This is still a bailout, but at the very least, someone represented the public this time around.

We still have to see what it looks like in the end, but I’m encouraged.

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NEVER AGAIN Say OWS Is Failing: AG Schneiderman Credits OWS for Renewed Pursuit of Bankers

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Piggybankblog posted 01/29/12

Picture posted by piggybankblog

Cross linked story with dailykos.com

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This morning on MSNBC, New York Attorney General Eric Schneiderman told Chris Hayes that “the people’s uprising” should be credited for renewed efforts to investigate and prosecute big banks.

The people’s uprising, of course, is Occupy Wall Street, and the renewed efforts about which Schneiderman speaks is a “nationwide probe of wrongdoing in the mortgage-backed securities market” that he has just been named to co-lead.

Schneiderman’s (nearly) direct reference to Occupy Wall Street as a motivating impetus for the national probe explicitly confirms what many have been arguing: that the nation’s protest movement has shaken the halls of government at its deepest levels by transforming the national conversation.

Our collective obsession, fed by the talking heads, is no longer on the deficit. Instead, a major focus is now on the connection between income inequality and financial corruption. In short, on the personal deficits individuals and families must contend with due to the corrupt stranglehold financial institutions and the one percent have on our elected leaders

“Banks Got Bailed Out. We Got Sold Out.”

Schneiderman’s utterance this morning comes on the heels of President Obama’s State of the Union address this week, which echoed many of the themes Occupy Wall Street has injected into our national consciousness, specifically themes of economic fairness and the need for the wealthiest Americans (1%) to pay their fair share.

Joe Garofoli of the San Fransisco Chronicle wrote after the SOTU address:

Linking the dominant themes in Obama’s nationally televised address Tuesday to the mantras of the Occupy Wall Street movement would have been unthinkable five months ago. But in having its message echoed in the State of the Union address, the Occupy movement reached a milestone in changing the national conversation.”Once you say the definition of my campaign is fairness, you don’t have to say anything else,” said Lawrence Rosenthal, an expert on social movements who directs UC Berkeley’s Center for the Comparative Study of Right-Wing Movements. “It is the central tenet” of the Occupy movement, he added.

Indeed, having such themes echo would have been unthinkable five months ago. But we are five months into this movement, and the profound way in which Occupy Wall Street has changed our national conversation about economic fairness and justice cannot be overstated.

When the President echoes your dominant themes, and when a national investigation into big banks headed by the New York Attorney General is launched because of those articulated themes, one thing is clear: Occupy Wall Street is winning.

And it’s only winter.

Come spring, expect Occupy Wall Street to blossom and expand dramatically, for while the movement may be winning the public discourse debate, there is so much more at stake.

We are just at the beginning.

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New federal mortgage fraud task force subpoenas 11 banks

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Piggybankblog posted on 01/27/12

Piggybankblog posted Picture

Cross linked story with housingwire.com

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The new federal task force led by New York Attorney General Eric Schneiderman sent subpoenas to the 11 largest financial institutions in the past few days as part of its investigation into possible residential mortgage-backed securities fraud.

President Obama formed the task group and announced it during his State of the Union address Tuesday.

Schneiderman said in a press conference Friday that he will be joined by Delaware AG Beau Biden, Massachusetts AG Martha Coakley, Nevada AG Catherine Cortez Masto, California AG Kamala Harris and Illinois AG Lisa Madigan.

U.S. Attorney General Eric Holder said 15 lawyers and investigators are working with the group. The FBI will add 10 agents, and another 30 lawyers and staff will join the group.

The Securities and Exchange Commission will also participate. SEC Director of Enforcement Robert Khuzami said there “would be no stone unturned, no dark corner unexposed to the light.”

“We have jurisdiction to go after every aspect of the mortgage bubble and the crash of the financial market,” Schneiderman said. “We have jurisdiction over every MBS issued over the last decade with Delaware and New York joining the group.”

Holder said if there is evidence of it, civil and criminal charges will be brought.

Department of Housing and Urban Development Secretary Shaun Donovan guaranteed any crackdown from the group’s investigation would include compensation to the homeowners affected by the financial crisis as well as investors.

“It became clear very quickly that Eric and I shared a vision that it would be a grave injustice to hold these institutions accountable and potentially have hundreds of billions be paid to private investors and pension funds but not make sure homeowners who hold those loans who depend on being able to get those loans fixed to be able stay in those homes,” Donovan said.

He also made clear the investigation and ongoing settlement negotiation between other state AGs and mortgage servicers over foreclosure problems would be separate and any charges would not release the banks from liability in the robo-signing scandal.

Iowa AG Tom Miller, heading up the mortgage servicer investigation, has said the resulting settlement would not release the banks from securitization or lending liabilities.

Schneiderman said there are some limitations to what documents the different participants could share. He clarified that the different charges brought against the banks may not have all of the AGs or DOJ listed as a prosecuting party but could be brought separately.

“I am confident you will see action in the weeks and days ahead that show this will be a very aggressive action,” Schneiderman said.

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Meet NY Attorney General Eric Schneiderman, The Man Who Could Be Wall Street’s New Worst Nightmare

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Piggybankblog posted on 01/27/12

Picture posted by Piggybankblog

Cross linked story with businessinsider.com

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Are Schneiderman and Liberal Groups Selling Out to Obama on Bank Fraud?

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Piggybankblog posted on 01/25/12

Piggybankblog posted picture

Cross linked story huffingtonpost.com

If the president thought his mortgage investigation announcement would be an easy sell to progressive critics, he was only half right at best. The announcement — especially the appointment of New York Attorney General Eric Schneiderman — did win praise from a number of liberal groups.

But there were other headlines in the progressive Internet this morning, too: “Is Eric Schneiderman selling out?” asked prominent financial blogger Yves Smith. David Dayen called it “The Schneiderman Gambit.” “Nice Try, Mr. President,” said attorney/blogger Abigail Field.

Smith’s subheader says Schneiderman “joins Federal Committee that looks designed to undermine AGs against mortgage settlement deal.” Dayen’s reads, “Financial fraud unit appears designed to fail and grease skids for foreclosure fraud settlement.” Field’s says that “Breuer and Khuzami (two other unit leaders) have to go and indictments have to be immediate.”

Atrios (Duncan Black) said “It’s hard to see the Schneiderman thing as anything but bad news,” while both David Dayen and Yves Smith wondered if the groups cheering the announcement are part of an orchestrated White House plan.

These are smart folks, and they’re almost certainly right about the situation in some ways. Does that mean that the groups praising the president are wrong? Not necessarily.

Disclosure: I have a fellowship with one of those groups, the Campaign for America’s Future. I’ve supported the effort to investigate the banks and block the administration’s proposed sweetheart deal for bank fraud.

But if this was a cheap gambit designed to distract progressives while serving the banks, I’d say so. (Unless I’d sold out too, of course. But I’d be trashing my own reputation, such as it is …)

The Critique

These criticisms of the president are in line with those I’ve made myself, including last night. “We already have a Financial Crimes Unit,” I said about the speech. “It’s called the Justice Department (and) it indicted more than 1,000 people after the Savings & Loan crisis.”

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

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

So there’s no reason to assume that the White House wouldn’t rather make a symbolic gesture rather than offer substantive change. The skepticism’s fully warranted.

The Committee

Like these commentators (I think very highly of them), I was very disappointed to learn that Schneiderman was to be a “co-chair” rather than heading the team. That means the group’s being run by a committee, not a leader. Committees are designed for paralysis and gridlock, not efficiency.

It’s ironic at best that the president promoted “streamlining government” and “eliminating bureaucracy” — and then appointed a committee in the next breath.

I had the same reaction they did when I heard that Lanny Breuer and Robert Khuzami were “co-chairs” with Schneiderman. Khuzami’s the architect behind some of the administration’s worst bank deals and is given to making entirely disingenuous arguments to defend them. (We once called his double-talk “gelatinous,” and that was being way too kind.)

People may remember Breuer from his weak performance on 60 Minutes, defending the administration’s inaction on bank crime, and from revelations that both Breuer and Eric Holder worked for the prominent Wall Street law firm Covington & Burling (which played a key role in pushing the MERS scam that played such a key role in the financial collapse).

Field and Smith are right to say this group wouldn’t be needed at all if Breuer and Khuzami (had been doing their jobs from the beginning. (That goes for Eric Holder too, as Neil Barofsky observes.)

The Accusation

“If I didn’t know better,” David Dayen writes, “I’d think that they had this guarantee in hand from the White House, so they could push out to their lists with the ‘big victory’ they received.”

Yves Smith agrees that ” A lot of soi-disant liberal groups have fallen in line with Obama messaging” — “which,” she adds with considerable certitude, “was the plan.” (Soi-disant? Moi?)

Here, too, skepticism’s understandable after what we’ve seen. But have these groups really “fallen in line” behind a secret White House plan?

The Accused

A lot of activist groups declared “victory” too soon on both health care and financial reform. That took the left’s bargaining chips off the table and led to a much weaker outcome. But nobody’s blessing a bad deal and folding their cards here.

Did these groups collude with the president? Remember, this is the president who’s only really lost his temper publicly with people like them — he labeled their positions, which were both more pragmatic and popular than his own, as “purist” — and whose administration once singled out “the institutional left” for its nastiest attacks.

To believe that you’d have to believe that CAF, MoveOn, New York Working Families Party, the AFL-CIO, New Bottom Line, the Alliance of Californians for Community Empowerment, and the Campaign for a Fair Settlement — all of which have harshly criticized the White House — were in on a plan to undermine the very goal they’ve been promoting for months.

Maybe there was a memo I didn’t get, but I can’t see that happening. – Continue reading

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State of the Union: President Obama’s Financial Fraud Team Tied To Banks

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Piggybankblog posted on 01/25/12

Picture posted by Piggybankblog

Cross linked story with huffingtonpost.com

WASHINGTON — President Barack Obama vowed during Tuesday’s State of the Union Address to establish a new Financial Crimes Unit dedicated to investigating and prosecuting “large-scale” financial fraud. By naming New York Attorney General Eric Schneiderman to the squad, Obama put enormous pressure on the outspoken Wall Street critic to join a foreclosure fraud settlement that Schneiderman has frequently rejected as overly acquiescent to the financial establishment.

As a political statement, Obama’s announcement marks a change of rhetorical tone from an administration that has been reluctant to directly criticize Wall Street. But the Obama team’s weak record on Wall Street fraud — and the presence of two big-bank-friendly regulators on the panel with Schneiderman — cast doubt on whether the new enterprise will be able to take serious action against the big banks instrumental in the 2008 meltdown.

“We will also establish a Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud and protect people’s investments,” Obama said. “I am asking my attorney general to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.”

Earlier in the speech, Obama ripped bankers for gorging themselves on risky practices that plunged the economy into recession.

“It was wrong,” Obama said, referring to the financial impropriety leading up to 2008. “It was irresponsible. And it plunged our economy into a crisis that put millions out of work, saddled us with more debt, and left innocent, hard-working Americans holding the bag.”

Such bluntly critical language marks a rhetorical shift for Obama. Although the president’s relationships with Wall Street have been strained for years, he has not actually spoken out against the banking establishment in speeches or interviews outside of a late 2009 interview with CBS’ 60 Minutes. During that interview, Obama criticized ” fat cat bankers” who had received bailout money and then lobbied against Wall Street reform. Financial elites reacted vehemently to the interview, and by the end of 2010, Obama was defending the bonuses paid out to JPMorgan Chase CEO Jamie Dimon and Goldman Sachs CEO Lloyd Blankfein, praising both as “savvy businessmen.”

Where it comes to enforcing laws against financial abuse, neither Obama’s Securities and Exchange Commission nor his Department of Justice have been aggressive with big banks. Obama has already established a specialized financial crime unit — the Financial Fraud Enforcement Network, a coalition of law enforcement agencies created by executive order in November 2009. The group’s official bio cites its raison d’etre as, “To hold accountable those who helped bring about the last financial crisis, and to prevent another crisis from happening.”

But the existing task force has not taken significant actions against the big banks that sparked the crash, instead focusing on much smaller players.

In the aftermath of the savings and loan crisis, more than 1,100 bankers were jailed for financial fraud. But since the 2008 crash — a far greater financial calamity — nobody working for one of the six largest banks has been criminally prosecuted for financial crimes tied to the meltdown. And while the SEC has settled several civil allegations of malfeasance with big banks, the agency has accepted relatively small amounts, earning the ire of some federal judges in the process.

The head of enforcement at the SEC, Robert Khuzami, who was previously the top lawyer at Deutsche Bank, has been castigated repeatedly by homeowner advocates and by federal Judge Jed Rakoff for inking settlements viewed as too lenient on big banks. Khuzami will share authority with New York’s Schneiderman on the new task force announced during the State of the Union Address. Justice Department deputy Lanny Breuer, a former top white-collar crime defense attorney for the high-powered Washington, D.C., law firm Covington & Burling will also be on the panel.

For more than a year, the Obama administration has been urging state attorneys general to reach a settlement with the nation’s five largest banks over allegations of widespread fraud in the foreclosure process. Schneiderman has objected to the deal at almost every level, insisting that it offers banks too much legal immunity for serious wrongdoing, and fails to address other financial improprieties in the sale of fraudulent mortgages and the packaging of those loans into bonds.

In addition to the new crime unit, Obama announced he’s “sending [to Congress] a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage by refinancing at historically low interest rates.” The refinances will be funded by “a small fee on the financial institutions” to ensure that the program does not add to the deficit while also giving “banks that were rescued by taxpayers a chance to repay a deficit of trust.”

Leveraging the nation’s unusually low interest rates is a good economic strategy, said Mark Zandi, chief economist at Moody’s Analytics. “If homeowners are able to pay a lower interest rate on their mortgage, they pay less in mortgage interest, so it frees up cash for them to spend on other things. So, it’s literally just like a tax cut, with new money that will find its way into the economy.”

However, a large-scale refinance program could flounder if the government doesn’t require bank participation, said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities. “The banks don’t always play along the way you want them to, so if their participation is voluntary, that’s a problem.”

The refinance strategy has been tried before by Obama. In 2009 he introduced the Home Affordable Refinance Program to help homeowners who were “underwater,” that is, they owed more on their mortgage than their home was worth. When first introduced in 2009, Obama projected that HARP could help 4 million to 5 million borrowers. As of last fall, only a half-million had refinanced through the program. Hoping to increase program efficacy, Obama loosened the eligibility criteria last October. It is likely that tonight’s announcement is a further expansion of that program.

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In State of the Union, Obama Stands Up for Homeowners

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Piggybankblog posted on 01/25/12

Piggybankblog posted picture

Cross linked story with thenation.com

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In his State of the Union address last night, President Obama announced an important initiative to address the housing crisis: one that will help affected homeowners while investigating and punishing those who helped create the problem.

A new mortgage crisis unit, made of up state and federal officials, which will look into wrongdoing by banks in the area of real estate lending. The unit will be headed by Eric Schneiderman, the attorney general of New York and a solid advocate for being tough on the banks for their role in the mortgage crisis.

“This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans,” Obama said in his address.

The unit will not supersede efforts by the Justice Department in this area (to the extent there are any) but will operate as part of the Financial Fraud Enforcement Task Force. Justice officials will still be involved, however, according to the Huffington Post, which first obtained details of the effort from the White House. In addition to Schneiderman, the unit will be co-chaired by Lanny Breuer of the Department of Justice; Robert Khuzami, director of enforcement at the SEC; John Walsh, a US attorney in Colorado; and Tony West, also of the Justice Department.

In a statement last night, Schneiderman promised tough investigations.

“The American people deserve a robust and comprehensive investigation into the global financial meltdown to ensure nothing like it ever happens again, and today’s announcement is a major step in the right direction,” he said. “In coordination with our federal partners, our office will continue its steadfast commitment to holding those responsible for the economic crisis accountable, providing meaningful relief for homeowners commensurate with the scale of the misconduct, and getting our economy moving again.”

As far as relief for homeowners, Obama made additional news last night, announcing additional federal efforts to help homeowners—though they must be current on their mortgage. A new federal program will allow those homeowners to refinance their mortgage at lower rates, and a federal fee on banks will help pay for the assistance.

“I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks,” Obama said.

“Let’s never forget: Millions of Americans who work hard and play by the rules every day deserve a Government and a financial system that do the same,” he continued. “It’s time to apply the same rules from top to bottom: No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody.”

Some may bristle at only helping homeowners that are current on their mortgages—and avoiding those in the most trouble. The administration, however, is clearly trying to thread a needle with its “no bailout, no handout” framing. Recall that the Tea Party movement was ostensibly kicked off by a Rick Santelli rant about helping people with their mortgages.

We’ve been reporting this week on a pending settlement with banks over mortgage fraud, and on a progressive push to ensure the settlement provides real assistance to homeowners and actually holds banks accountable.

The same group leading that push praised the creation of the mortgage crisis unit last night. “We applaud the President for siding with American homeowners and taxpayers and sending a message that Wall Street banks are not above the law and will be held accountable for their actions that crashed the economy,” said a statement from The Campaign for a Fair Settlement. “The President faced significant pressure from Wall Street CEOs to let the banks off the hook. By creating the mortgage crisis unit, President Obama showed real leadership—and proved that his top priority is fixing the economy for working Americans.”

How the new initiatives announced last night will impact the settlement, if at all, are impossible to tell for now. But the campaign is not letting the new efforts be an excuse not to have a strong settlement with the banks. “While the creation of this unit is a clear victory, we still have concerns about the servicing deal on the table with States.”

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EXCLUSIVE: Obama To Announce Mortgage Crisis Unit Chaired By New York Attorney General Schneiderman

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Posted by Piggybankblog on 01/24/12

Picture posted by Piggybankblog

Cross Linked story with huffingtonpost.com

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WASHINGTON — During his State of the Union address tonight, President Obama will announce the creation of a special unit to investigate misconduct and illegalities that contributed to both the financial collapse and the mortgage crisis.

The office, part of a new Unit on Mortgage Origination and Securitization Abuses, will be chaired by Eric Schneiderman, the New York attorney general, according to a White House official.

Schneiderman is an increasingly beloved figure among progressives for his criticism of a proposed settlement between the 50 state attorneys general and the five largest banks. His presence atop this new special unit could give it immediate legitimacy among those who have criticized the president for being too hesitant in going after the banks and resolving the mortgage crisis. He will be in attendance at Tuesday night’s State of the Union address.

“The goal of this joint investigation will be threefold: to hold accountable any institutions that violated the law; to compensate victims and help provide relief for homeowners struggling from the collapse of the housing market, caused in part by this wrongdoing; and to help us finally turn the page on this destructive period in our nation’s history,” reads a White House document outlining the objectives.

“This is a big achievement and something the entire progressive advocacy community wanted [with respect to] housing policy,” added the White House official.

The unit will not supersede the efforts already underway by the Department of Justice. Instead, it will operate as part of the president’s Financial Fraud Enforcement Task Force. In addition to Schneiderman, the unit will be co-chaired by Lanny Breuer, assistant attorney general at the Criminal Division of the Department of Justice, Robert Khuzami, director of enforcement at the SEC; John Walsh, a U.S. attorney in Colorado, and Tony West, assistant attorney general in the Civil Division at DOJ.

News of the new mortgage unit comes amidst reports of a potential settlement between the five biggest banks, the Obama administration and the state attorneys general. Under the deal, banks would agree to follow existing laws against abusive foreclosures and set aside $25 billion to both help homeowners who are underwater on their homes or who were wrongfully foreclosed. The agreement has been in the works for months, with disagreements over the level of legal immunity granted to banks accused of wrongdoing, and the scope of violations covered by the deal.

Critics of the pending settlement have argued that the president should couple the financial relief for homeowners with a robust law enforcement effort targeting lawbreaking by big banks. Schneiderman has been among the settlement’s most prominent critics for months, insisting that a deal not release bankers from criminal charges, and urging AGs to look into violations outside the foreclosure process, including issuing fraudulent loans and improprieties in the packaging of those loans into complex bonds that would become toxic assets.

UPDATE: Schneiderman’s office sends over the following statement from the Attorney General.

I would like to thank President Obama for his leadership in the creation of a coordinated investigation that marshals state and federal resources to bring justice for the victims of the misconduct that caused the mortgage crisis.In coordination with our federal partners, our office will continue its steadfast commitment to holding those responsible for the economic crisis accountable, providing meaningful relief for homeowners commensurate with the scale of the misconduct, and getting our economy moving again.

The American people deserve a robust and comprehensive investigation into the global financial meltdown to ensure nothing like it ever happens again, and today’s announcement is a major step in the right direction.

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Occupy San Francisco Takes the Fight to Local Banks in Ambitious Next Step for Movement

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Piggybankblog posted on 01/23/12

Piggybankblog posted picture

Cross linked story with alternet.org

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After a brief hibernation, a refocused movement takes aim at corporate America–specifically, Wells Fargo and Bank of America on “Wall Street West.”

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Act II of the Occupy Wall Street movement, San Francisco version, kicked off on a rainy, blustery Friday in the heart of the city’s financial district. Targeting specific corporations like Wells Fargo and Bank of America and emphasizing real, tangible issues like home foreclosures, affordable health care and education as well as broader ones like the Supreme Court’s Citizens United decision, several hundred protesters – the exact number was impossible to estimate – fanned out across the city, snarling traffic, getting arrested, holding sidewalk teach-ins, and generally serving notice that after its brief winter hibernation, the Occupy movement was back and kicking.

Occupy’s first act, the Tent Phase, ended in early December, when city authorities raided its urban camp at Justin Herman Plaza near the Ferry Building. But even before the tents were removed, it had become clear that the movement needed both to develop new tactics and deepen its strategic vision.

“After the raid, when our attention was no longer focused on [the encampment], people turned back to their neighborhoods and their campuses,” said David Solnit, who is part of a direct action working group associated with Occupy SF. “We started Occupy Bernal Heights [a multi-ethnic, mixed-income neighborhood on the edge of the Mission District], and we had 65 people at the first meeting. We went door to door meeting folks facing foreclosures. We got meetings with mid-level people at Wells Fargo Bank.”

Solnit – who is the brother of San Francisco writer Rebecca Solnit – said that OccupySF Housing, a housing-related spinoff of the movement, had held marches in four neighborhoods and succeeded in saving four homes from foreclosure.

“We’re more diversified now, but more powerful than when all our eggs were in one basket,” Solnit said. “Gene Sharp came up with 198 different methods of nonviolent action. Camping out is one tactic. We still have 197 more tactics to go through, and another 500 to create.”

At 6:20 a.m., in pitch darkness, with a miserable rain pelting down in front of the enormous 52-story monolith of 555 California, it seemed like a good idea for Occupy to come up with a new tactic immediately. The schedule on the Occupy Wall St. West web site had announced that there would be a wacky 6 a.m. protest against Goldman Sachs, featuring a squid fry (“bring your own frying pan”) and protesters dressed as squids. (The squid theme derived from Rolling Stone writer Matt Taibbi’s famous description of Goldman Sachs as “a great vampire squid wrapped around the face of humanity.”) But no one seemed to be giving out fried calamari – not that anyone could have digested it at that ungodly hour — and there were only four protesters standing near the entrance. They were dwarfed by a phalanx of waiting police and TV journalists.

The last person you would expect to find standing in a bedraggled squid costume in front of a financial district skyscraper at six in the morning would be a 69-year-old retired psychology professor. But the Occupy movement is full of surprises. The human squid, Eleanor Levine, said, “I’m out here to bring attention to the irresponsible financial practices of Goldman Sachs. I also want to bring attention to the concept of corporate personhood [which was behind the Supreme Court ruling in Citizens United]. Corporations are not people. This company played a role in bringing not just the country but the world to financial ruin. People have to face up to what Goldman Sachs has done. Their CEO made $28 million.” Asked if the dreadful weather had prevented more people from joining the protest, Levine said calmly, “Yes, the rain put a damper on the turnout, but more will come.” Her pink tentacles waving, she walked cheerfully off.

I approached a mustachioed man in a yellow poncho inscribed with the words “Money 4 Housing and Education, not 4 Banks and Corporations.” Alex Carlson, 34, was a paramedic who said the biggest reason he came out was to protest America’s lack of educational opportunities. “I couldn’t get into school just to get an EMI license. I had to beg a teacher to let me into his class. Nursing was my real goal, but there’s no money for nursing schools. It’s crazy because there’s a nursing shortage and there’s going to be a crisis of care when the bay boomers die off.” - continue reading

Insight: Top Justice officials connected to mortgage banks

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Piggybankblog posted on 01/20/12

Cross linked story with reuters.com

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(Reuters) – U.S. Attorney General Eric Holder and Lanny Breuer, head of the Justice Department’s criminal division, were partners for years at a Washington law firm that represented a Who’s Who of big banks and other companies at the center of alleged foreclosure fraud, a Reuters inquiry shows.

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The firm, Covington & Burling, is one of Washington’s biggest white shoe law firms. Law professors and other federal ethics experts said that federal conflict of interest rules required Holder and Breuer to recuse themselves from any Justice Department decisions relating to law firm clients they personally had done work for.

Both the Justice Department and Covington declined to say if either official had personally worked on matters for the big mortgage industry clients. Justice Department spokeswoman Tracy Schmaler said Holder and Breuer had complied fully with conflict of interest regulations, but she declined to say if they had recused themselves from any matters related to the former clients.

Reuters reported in December that under Holder and Breuer, the Justice Department hasn’t brought any criminal cases against big banks or other companies involved in mortgage servicing, even though copious evidence has surfaced of apparent criminal violations in foreclosure cases.

The evidence, including records from federal and state courts and local clerks’ offices around the country, shows widespread forgery, perjury, obstruction of justice, and illegal foreclosures on the homes of thousands of active-duty military personnel.

In recent weeks the Justice Department has come under renewed pressure from members of Congress, state and local officials and homeowners’ lawyers to open a wide-ranging criminal investigation of mortgage servicers, the biggest of which have been Covington clients. So far Justice officials haven’t responded publicly to any of the requests.

While Holder and Breuer were partners at Covington, the firm’s clients included the four largest U.S. banks – Bank of America, Citigroup, JP Morgan Chase and Wells Fargo & Co – as well as at least one other bank that is among the 10 largest mortgage servicers.

DEFENDER OF FREDDIE

Servicers perform routine mortgage maintenance tasks, including filing foreclosures, on behalf of mortgage owners, usually groups of investors who bought mortgage-backed securities.

Covington represented Freddie Mac, one of the nation’s biggest issuers of mortgage backed securities, in enforcement investigations by federal financial regulators.

A particular concern by those pressing for an investigation is Covington’s involvement with Virginia-based MERS Corp, which runs a vast computerized registry of mortgages. Little known before the mortgage crisis hit, MERS, which stands for Mortgage Electronic Registration Systems, has been at the center of complaints about false or erroneous mortgage documents.

Court records show that Covington, in the late 1990s, provided legal opinion letters needed to create MERS on behalf of Fannie Mae, Freddie Mac, Bank of America, JP Morgan Chase and several other large banks. It was meant to speed up registration and transfers of mortgages. By 2010, MERS claimed to own about half of all mortgages in the U.S. — roughly 60 million loans.

But evidence in numerous state and federal court cases around the country has shown that MERS authorized thousands of bank employees to sign their names as MERS officials. The banks allegedly drew up fake mortgage assignments, making it appear falsely that they had standing to file foreclosures, and then had their own employees sign the documents as MERS “vice presidents” or “assistant secretaries.”

Covington in 2004 also wrote a crucial opinion letter commissioned by MERS, providing legal justification for its electronic registry. MERS spokeswoman Karmela Lejarde declined to comment on Covington legal work done for MERS.

It isn’t known to what extent if any Covington has continued to represent the banks and other mortgage firms since Holder and Breuer left. Covington declined to respond to questions from Reuters. A Covington spokeswoman said the firm had no comment.

Several lawyers for homeowners have said that even if Holder and Breuer haven’t violated any ethics rules, their ties to Covington create an impression of bias toward the firms’ clients, especially in the absence of any prosecutions by the Justice Department.

O. Max Gardner III, a lawyer who trains other attorneys to represent homeowners in bankruptcy court foreclosure actions, said he attributes the Justice Department’s reluctance to prosecute the banks or their executives to the Obama White House’s view that it might harm the economy.

But he said that the background of Holder and Breuer at Covington — and their failure to act on foreclosure fraud or publicly recuse themselves — “doesn’t pass the smell test.”

Federal ethics regulations generally require new government officials to recuse themselves for one year from involvement in matters involving clients they personally had represented at their former law firms.

President Obama imposed additional restrictions on appointees that essentially extended the ban to two years. For Holder, that ban would have expired in February 2011, and in April for Breuer. Rules also require officials to avoid creating the appearance of a conflict.

 

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JOHN L. O’BRIEN, JR. Register of Deeds Calls for Criminal Action Against the Big Banks, Says they acted like “criminal enterprise”

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Piggybankblog posted on 01/19/12

Piggybankblog posted picture

Cross linked story with 4closurefraud.org

FOR IMMEDIATE RELEASE

kevin.harvey@sec.state.ma.us

O’Brien calls for criminal action against the Big Banks. Says they acted like “criminal enterprise”

Saying that the time has come for a full scale criminal investigation, Southern Essex District Register of Deeds John O’Brien, today has sent some 31,897 of what he says are fraudulent documents that have been recorded in the Salem Registry to Massachusetts Attorney General Martha Coakley, U.S. Attorney General Eric Holder and U.S. Attorney Carmen Ortiz.

O’Brien said that he is asking these officials to impanel a Grand Jury to look into the evidence that he has presented. “I am confident that these documents will show a pattern of fraud, uttering and forgery. These documents are signed by known robo or surrogate signers, whose signatures were supposedly witnessed by notary publics. In addition, these documents may contain fraudulent information in the body of the documents. I believe that a criminal investigation is the next step to hold the perpetrators responsible.”

O’Brien praised Attorney General Coakley for her aggressive pursuit of wrongdoing in her civil action but noted that other states such as California, Nevada, Illinois and Michigan have launched criminal investigations, and O’Brien is hopeful that Massachusetts will do the same. O’Brien strongly suggests that the Grand Jury should subpoena both the past and present Chief Executive Officers (CEOs) of the Mortgage Electronic Recording Systems, Inc. (“MERS”), Bank of America, JP Morgan Chase, Citibank, Wells Fargo, Countrywide, Washington Mutual among others.

In addition, he is asking that the top officials of DOCX, Nationwide Title Clearing, Inc. and LPS also be subpoenaed. “These companies have been retained by MERS and its member-banks to produce the documents that I am alleging contain fraudulent information. It is one thing to go after these institutions with a civil action, but the only way to let them know that you are serious is to call them before a Grand Jury.” O’Brien said, “There is no question in my mind that the officers of these banks and loan processing servicers made a conscious decision to commit fraud and participate in a scheme to deprive the public from knowing the true holder of their mortgage while at the same time avoiding paying billions of dollars in recording fees.

It is my opinion that they acted as a criminal enterprise, crossing state lines to commit their crimes and in most cases using the U.S. Postal Service to send these documents to registries of deeds, thereby committing mail fraud. We need to know what they knew and when they knew it.

Until the CEOs who allowed these fraudulent activities to happen under their watch are sent to jail for what they did, these types of illegal behaviors will continue.” Just last week, O’Brien’s Registry received 3 documents from Bank of America, all signed by a known robo-signer, Linda Burton. O’Brien said, “If they are sending them to me, of all people, it is safe to assume that they are sending them to registries across the country.”

O’Brien refuses to record any documents signed by a robo-signer on his list unless those documents are accompanied by an affidavit attesting to the signature. So far, he has not received one affidavit. “That clearly shows me that those documents were in fact fraudulent.” O’Brien said that if he or anyone else went into one of these major banks and forged a signature on a loan document they would be arrested and sent into jail.

So it begs the question, why haven’t these CEO’S been held accountable? O’Brien cited the case of the individual who walked into a Walmart and tried to make a purchase using a fraudulent One Million Dollar bill. He was arrested and charged with attempting to obtain property by false pretence and uttering a forged instrument. O’Brien said, “As far as I am concerned, this is what these banks have been doing for years. Make no mistake, MERS and its member-banks are taking people’s homes using fraudulent documents and that is something we do not do in America.”

In addition, O’Brien is zeroing in on the major foreclosure law firms that he believes have acted as a co-conspirator in flooding the registries of deeds with these fraudulent instruments. “These attorneys should know better. They have acted as co-conspirators in perpetrating this fraud. I am sending a letter to the Massachusetts Board of Bar Overseers asking that they conduct an independent investigation into the activities of these firms.

Unlike our Massachusetts Attorney General Martha Coakley, I understand that there are other Attorneys General and other public officials across the country who would like nothing better than to sweep this matter under the rug and grant these lenders, loan servicing companies and their foreclosure-mill attorneys immunity for the damage that they have caused, not only to our economy but to people’s property rights. They would be willing to accept pennies on the dollar, a slap on the wrist, and a promise to never do it again. If that should happen, it would be the biggest sellout of the American People that I have ever seen. It would send the wrong message that the big boys can get away with anything.

As I have been saying all along, they may think they are too big to fail, but as far as I am concerned, they are not to big to go to jail. The top officials at MERS, its member-banks, servicers and foreclosure-mill attorneys must be prosecuted and held accountable for their fraudulent schemes that brought profits to their institutions by cutting corners, circumventing land recordation systems through fraud, uttering and forgery.”

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Bank of America profit boosted by one-time gains

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Piggybankblog posted on 01/19/12

Piggybankblg posted picture

Cross linked with reuters.com

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(Reuters) – Signs of improvement in the economy and gains from asset sales helped Bank of America Corp post a quarterly profit, sending its shares higher on Thursday, but the second-largest U.S. bank still needs more capital and with little left to sell, it is becoming creative.

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Bank of America said it was considering issuing $1 billion in common stock to certain employees in lieu of a portion of their year-end cash bonuses next month.

The move, a large stock issue to effectively captive investors — its employees — could further pad the bank’s capital levels, but at the same time dilute shareholders’ interest and may stir discontent among some bankers.

Investors, however, seemed to shrug aside such fears and focus instead on Chief Executive Brian Moynihan’s success so far in building up capital levels and fixing the bank’s problems.

The fourth-quarter profit after a year-ago loss, improving loan demand and better credit quality, all helped buoy Bank of America’s shares, which rose 5.7 percent to $7.19 in morning trading on the New York Stock Exchange.

“Bank of America looks like it’s making good progress on the capital build-up,” said Derek Pilecki of Gator Capital Management in Tampa, Florida. “It’s a work in progress with expense cuts continuing. They have to issue stock to make capital targets, but the dilution isn’t overwhelming.”

Bank of America was still trying to recover fully from the aftermath of the 2008 financial crisis and a disastrous acquisition of mortgage lender Countrywide Financial that has saddled the company with losses.

Moynihan is working to show Bank of America has enough capital to absorb these mortgage-related losses and to meet new international capital standards. Over the past two years, he has been shedding noncore businesses to boost capital levels and streamline the company.

Last spring, Bank of America launched a wide-ranging efficiency program called Project New BAC, which is expected to eliminate 30,000 jobs in its first phase over the next few years.

On a conference call with analysts on Wednesday, Chief Financial Officer Bruce Thompson said the bank should start to see the benefits of job cuts in first quarter expenses.

“We enter 2012 stronger and more efficient after two years of simplifying and streamlining our company,” Moynihan said in a statement. “We built our capital ratios to record levels during 2011 on the strength of our core businesses and by shedding those that are not core to serving customers and clients.”

Bank of America said its Tier 1 common equity ratio, a key measure of capital against risk-weighted assets, reached 9.86 percent at the end of December.

That was up from 8.65 percent at the end of September and higher than the 9.25 percent minimum the bank had projected.

ONE-TIME GAINS

Bank of America said net income applicable to common shareholders was $1.58 billion, or 15 cents per share, in the fourth quarter, compared with a loss of $1.6 billion, or 16 cents per share, a year earlier.

The Charlotte, North Carolina-based bank benefited from pretax gains of $5.3 billion from the sale of China Construction Bank Corp shares, and gains from the exchange of trust preferred securities and the sale of debt securities.

Various accounting charges and litigation expenses reduced earnings by $3.7 billion.

The bank set aside $2.9 billion in the quarter for loan losses, down from $5.1 billion a year ago. Bank of America, which is working to shed risky assets, also said total loans decreased to $926 billion from $932 billion in the third quarter.

Like rivals Wells Fargo & Co, JPMorgan Chase & Co and some regional banks, Bank of America reported loan growth in the fourth quarter, potentially boding well for the U.S. economy.

In its corporate bank, average loans and leases increased 29 percent to $107.5 billion, with growth in both U.S. and international commercial loans. – continue reading

John Wright says: “Yah! Because they might have been FRAUDCLOSING on people’s homes more lately! However, all those profits might be there now, but let’s see if they are still there when everybody’s lawsuits hit courtroom!” (Wink)

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Occupy the Neighborhood: How Counties Can Use Land Banks and Eminent Domain

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Piggybankblog posted on 12/16/11

Piggybankblog posted picture

Cross linked story with truth-out-org

An electronic database called MERS (Mortgage Electronic Registration Systems) has created defects in the chain of title to over half the homes in America. Counties have been cheated out of millions of dollars in recording fees, and their title records are in hopeless disarray. Meanwhile, foreclosed and abandoned homes are blighting neighborhoods. Straightening out the records and restoring the homes to occupancy is clearly in the public interest, and the burden is on local government to do it. But how? New legal developments are presenting some innovative alternatives.

John O’Brien is register of deeds for Southern Essex County, Massachusetts. He is mad as hell and he isn’t going to take it anymore. He calls his land registry a “crime scene.” A formal forensic audit of the properties for which he is responsible found that:

• Only 16 percent of the mortgage assignments were valid.
• Twenty-seven percent of the invalid assignments were fraudulent, 35 percent were “robo-signed” and 10 percent violated the Massachusetts Mortgage Fraud Statute.
• The identity of financial institutions that are current owners of the mortgages could be determined for only 287 out of 473 (60 percent).
• There were 683 missing assignments for the 287 traced mortgages, representing approximately $180,000 in lost recording fees per 1,000 mortgages whose current ownership could be traced.

At the root of the problem is that title has been recorded in the name of a private entity called MERS as a mere placeholder for the true owners. The owners are a faceless, changing pool of investors owning indeterminate portions of sliced and diced securitized properties. Their identities have been so well hidden that their claims to title are now in doubt. According to the auditor:

What this means is that … the institutions – including many pension funds – that purchased these mortgages don’t actually own them….

The March of the Attorneys General

John O’Brien was thrilled when Massachusetts Attorney General Martha Coakley went to court in December against MERS and five major banks – Bank of America Corp., JPMorgan Chase, Wells Fargo, Citigroup and GMAC. Coakley says banks have “undermined our public land record system through the use of MERS.”

Other attorneys general are also bringing lawsuits. Delaware Attorney General Beau Biden is going after MERS in a suit seeking $10,000 per violation. “Since at least the 1600s,” he says, “real property rights have been a cornerstone of our society. MERS has raised serious questions about who owns what in America.”

Biden’s lawsuit alleges that MERS violated Delaware’s Deceptive Trade Practices Act by:

• Hiding the true mortgage owner and removing that information from the public land records.
• Creating a systemically important, yet inherently unreliable, mortgage database that created confusion and inappropriate assignments and foreclosures of mortgages.
• Operating MERS through its members’ employees, whom MERS confusingly appoints as its corporate officers so that they may act on MERS’ behalf.
• Failing to ensure the proper transfer of mortgage loan documentation to the securitization trusts, which may have resulted in the failure of securitizations to own the loans upon which they claimed to foreclose.

This last allegation – that there are fatal defects in the loan documentation – may be even more conclusive than the MERS defect in establishing a break in the chain of title to securitized properties. Mortgage-backed securities are sold to investors in packages representing interests in trusts called REMICs (Real Estate Mortgage Investment Conduits). REMICs are designed as tax shelters; but to qualify for that status, they must be “static.” Mortgages can’t be transferred in and out once the closing date has occurred. The REMIC Pooling and Servicing Agreement typically states that any transfer after the closing date is invalid. Yet few, if any, properties in foreclosure seem to have been assigned to these REMICs before the closing date, in blatant disregard of legal requirements. The whole business is quite complicated, but the bottom line is that title has been clouded not only by MERS, but because the trusts purporting to foreclose do not own the properties by the terms of their own documents.

Courts Are Taking Notice

The title issues are so complicated that judges themselves have been slow to catch on, but they are increasingly waking up and taking notice. In some cases, the judge is not even waiting for the borrowers to raise lack of standing as a defense. In two cases decided in New York in December, the banks lost although their motions were either unopposed or the homeowner did not show up, and in one, there was actually a default. No matter, said the court; the bank simply did not have standing to foreclose.

In Citigroup v. Smith, 2011 NY Slip Op 52236 (U) (December 13, 2011), the mortgage document acknowledged that MERS was not the lender, but was “a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns.” The court held that since MERS was not a party to the underlying note, when it assigned the mortgage to plaintiff Citigroup there was no assignment of the note; and “a transfer of [a] mortgage without the debt is a nullity and no interest is acquired by it.”

Failure to comply with the terms of the loan documents can make an even stronger case for dismissal. In Horace v. LaSalle, Circuit Court of Russell County, Alabama, 57-CV-2008-000362.00 (March 30, 2011), the court permanently enjoined the bank (now part of Bank of America) from foreclosing on the plaintiff’s home, stating:

[T]he court is surprised to the point of astonishment that the defendant trust (LaSalle Bank National Association) did not comply with New York Law in attempting to obtain assignment of plaintiff Horace’s note and mortgage….

[P]laintiff’s motion for summary judgment is granted to the extent that defendant trust … is permanently enjoined from foreclosing on the property….

Relief for Counties: Land Banks and Eminent Domain

The legal tide is turning against MERS and the banks, giving rise to some interesting possibilities for relief at the county level. Local governments have the power of eminent domain: they can seize real or personal property if (a) they can show that doing so is in the public interest, and (b) the owner is compensated at fair market value.

The public interest part is easy to show. In a 20-page booklet titled “Revitalizing Foreclosed Properties with Land Banks,” the US Department of Housing and Urban Development (HUD) observes:

The volume of foreclosures has become a significant problem, not only to local economies, but also to the aesthetics of neighborhoods and property values therein. At the same time, middle- to low-income families continue to be priced out of the housing market while suitable housing units remain vacant.

The booklet goes on to describe an alternative being pursued by some communities:

To ameliorate the negative effects of foreclosures, some communities are creating public entities – known as land banks – to return these properties to productive reuse while simultaneously addressing the need for affordable housing.

States named as adopting land bank legislation include Michigan, Ohio, Missouri, Georgia, Indiana, Texas, Kentucky and Maryland. HUD notes that the federal government encourages and supports these efforts. But states can still face obstacles to acquiring and restoring the properties, including a lack of funds and difficulties clearing title.

Both of these obstacles might be overcome by focusing on abandoned and foreclosed properties for which the chain of title has been broken, either by MERS or by failure to transfer the promissory note according to the terms of the trust indenture. These homes could be acquired by eminent domain both free of cost and free of adverse claims to title. The county would simply need to give notice in the local newspaper of an intent to exercise its right of eminent domain. The burden of proof would then transfer to the bank or trust claiming title. If the claimant could not prove title, the county would take the property, clear title and either work out a fair settlement with the occupants or restore the home for rent or sale.

Even if the properties were acquired without charge, counties might lack the funds to restore them. Additional funds could be had by establishing a public bank that serves more functions than just those of a land bank. In a series titled “A Solution to the Foreclosure Crisis,” Michael Sauvante of the National Commonwealth Group suggests that properties obtained by eminent domain can be used as part of the capital base for a chartered, publicly owned bank, on the model of the state-owned Bank of North Dakota. The county could deposit its revenues into this bank and use its capital and deposits to generate credit, as all chartered banks are empowered to do. This credit could then be used not just to finance property redevelopment, but for other county needs, again on the model of the Bank of North Dakota. For a fuller discussion of publicly owned banks, see http://PublicBankingInstitute.org.

Sauvante adds that the use of eminent domain is often viewed negatively by homeowners. To overcome this prejudice, the county could exercise eminent domain on the mortgage contract rather than on title to the property. (The power of eminent domain applies both to real and to personal property rights.) Title would then remain with the homeowner. The county would just have a secured interest in the property, putting it in the shoes of the bank. It could renegotiate reasonable terms with the homeowner, something banks have been either unwilling or unable to do, since they have to get all the investor-owners to agree, a difficult task; and they have little incentive to negotiate when they can make more money on fees and credit-default-swaps on contracts that go into default.

Settling With the Investors

What about the rights of the investors who bought the securities allegedly backed by the foreclosed homes? The banks selling these collateralized debt obligations represented that they were protected with credit-default-swaps. The investors’ remedy is against the counterparties to those bets – or against the banks that sold them a bill of goods.

Foreclosure defense attorney Neil Garfield says the investors are unlikely to recover on abandoned and foreclosed properties in any case. Banks and servicers can earn more when the homes are bulldozed – something that is happening in some counties – than from a sale or workout at a loss. Not only is more earned on credit-default-swaps and fees, but bulldozed homes tell no tales. Garfield maintains that fully a third of the investors’ money has gone into middleman profits rather than into real estate purchases and “with a complete loss no one asks for an accounting.”

Not only homes and neighborhoods, but 400 years of property law are being destroyed by banker and investor greed. As Barry Ritholtz observes, the ability of a property owner to confidently convey his property is a bedrock of our society. Bailing out reckless financiers and refusing to hold them accountable has led to a fundamental breakdown in the role of government and the court system. This can be righted only by holding the 1 percent to the same set of laws as are applied to the 99 percent. Those laws include that a contract for the sale of real estate must be in writing signed by seller and buyer, that an assignment must bear the signatures required by local law and that forging signatures gives rise to an actionable claim for fraud.

The neoliberal model that says banks can govern themselves has failed. It is up to county government to restore the rule of law and repair the economic distress wrought behind the smokescreen of MERS. New tools at the county’s disposal – including eminent domain, land banks and publicly owned banks – can facilitate this local rebirth.

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The 10 Most Hated Companies in America

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Piggybankblog posted on 01/15/12

Piggybankblog posted picture

Cross linked with story 247wallst.com

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The electronics retailer broke the cardinal rule of customer relations. It failed to keep a promise to its customers — and told them when it was too late. Best Buy (NYSE: BBY) ran out of certain items that people had ordered for Christmas, but did not tell the customers until two days before the holiday. In a Forbes article, which argues that Best Buy will slowly go out of business, the author pointed out that the retailer’s explanation made it appear that some force from outside the company caused the problem — this was not the case. According to the company’s press release, “Due to overwhelming demand of hot product offerings on BestBuy.com during the November and December time period, we have encountered a situation that has affected redemption of some of our customers’ online orders.” Did Best Buy encounter the problem, or did the problem encounter Best Buy? ForeSee research recently issued its 2011 Retail Satisfaction list for the holidays. Best Buy rival Amazon.com (NASDAQ: AMZN) was at the top of the list. Best Buy was not even in the top 20. Wall St. has no reason to be happy with Best Buy either. Its shares have fallen 30% in the past year.

7. Bank of America

In September, Bank of America (NYSE: BAC) announced it was laying off 30,000 people. Its share value has dropped 55% in one year. And the bank continues to face legal actions from the federal government, several states and some of its shareholders. In early September the FHFA officially announced its lawsuit against 17 banks, including Bank of America, Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM) and Goldman Sachs, concerning $196 billion in mortgage securities. Bank of America has even been charged with keeping one of its largest legal threats a secret from shareholders. Reuters reported in August that top Bank of America lawyers knew as early as January that American International Group (NYSE: AIG) was prepared to sue the bank for more than $10 billion, seven months before the lawsuit was filed. Retail customers have shown their disdain for Bank of America’s customer service. Not only is it near the bottom of many customer satisfaction surveys, 41.5% of respondents in the MSN Money-IBOPE Zogby International customer service survey rated its service as “poor.” That is the highest percentage of respondents giving a “poor” rating to any company.

8. Johnson & Johnson

Johnson & Johnson (NYSE: JNJ) has experienced a series of product recalls and problems that began with Motrin and Tylenol for children. According to AP, these recalls were among “more than two dozen that J&J has issued since September 2009, for products ranging from adult and children’s nonprescription Tylenol, Motrin, Benadryl and other medicines to prescription drugs for HIV and seizures, defective hip implants that caused severe pain and contact lenses that irritated the eyes.” The parents of a two-year-old who was treated with one of the tainted batches of Children’s Tylenol recently sued the company for the wrongful death of their child. In March 2011, the FDA took over three Tylenol plants owned by Johnson & Johnson. The recalls are beginning to hurt the company. Third-quarter 2011 sales of over-the-counter drugs fell 24% from the previous year. According to Bloomberg, company executives attributed the significant loss of market share to quality issues that kept products off shelves. The long series of problems has ruined what was once a sterling reputation. Since the disclosures mounted two years ago, Johnson & Johnson shares are flat while the DJIA is up 17%, over the past year.

9. Sears

The aging retailer has done a poor job with customers in the past year, and the parent company has done poorly for Wall St. since Sears merged with bankrupt Kmart in 2005. The performance of both brands has been so bad that shares in Sears Holdings (NASDAQ: SHLD) have dropped 60% in the past year. Sears has been the biggest problem. In the five holiday weeks that ended at the start of January, Sears store sales were down 6%. After announcing these results, Sears Holdings said it would close 100 to 120 Sears and Kmart stores. In December, S&P placed Sears Holdings’ credit rating on review for a possible downgrade. “We believe that one of the primary issues is that the company has underinvested in its stores base, especially when compared with its peers,” the ratings agency said. Sears.com did particularly badly in the recent ForeSee holiday online shopping customer satisfaction survey. It ranked sixth from the bottom out of the 40 companies on the list. The American Customer Satisfaction Index for Department and Discount Stores also ranked Sears near the bottom of the list, along with Kmart.

10. Netflix

Netflix (NASDAQ: NFLX) had one of the highest customer satisfaction ratings of any large consumer-facing company a year ago. Its stock traded at an all-time high of $305 and has dropped to $90 in less than six months. One of the primary causes was the raising of customer rates by 60% last August. The move caused the loss of 810,000 subscribers, according to the company’s third-quarter earnings report, and set off a firestorm of customer complaints. CEO Reed Hastings said at the time that the cancellations would continue until “the price effect washes through.” The final damage done to the company is incalculable. It had ranked number two on the list of ForeSee’s online retail quality list a year ago, just behind Amazon. It fell to 18th place in this year’s survey. Netflix shares were among the greatest losers on Nasdaq last year. The stock shed 62% of its value, virtually all in the final four months of the year.

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Bank of America, Big Banks Face Massive Credit Card Case

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Piggybankblog posted on 01/13/12

Piggybankblog posted picture

Cross linked story with forbes.com

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Private antitrust litigation pitting some five million retailers against Visa (V), MasterCard (MA), and 13 large banks, including Bank of America (BAC), Citigroup, Capital One Financial (COF), JPMorgan Chase (JPM), U.S. Bancorp (USB), Wells Fargo (WFC), PNC Financial (PNC), Fifth Third Bancorp (FITB), SunTrust Banks (STI), HSBC (HBC) and Barclays Plc (BCS) has slipped under the radar of many analysts and investors who follow those companies, but the case may deliver a multi-billion dollar shock to bank bulls in the coming months.

Estimates of the potential cost of a settlement of the antitrust case vary dramatically–from a few billion dollars into the hundreds of billions. At least as worrisome to the financial companies, according to Deutsche Bank research, is the risk that a settlement or judge’s ruling could take the 2% “interchange” fees banks and card companies charge retailers on credit card transactions to as low as .5%, That would equal the rate in Australia, but still be higher than the .3% charged in the European Union, according to a report by Sanford Bernstein analyst Rod Bourgeois.

The impact of such a change would be several times as costly as the Durbin Amendment, which caps fees banks can charge on debit cards and is one of the new rules most hated by the big banks.

According to a Jan. 4 report by Deutsche Bank analyst Matt O’Connor, reducing credit card interchange fees by 75% would cost US Bancorp about $1.2 billion of 2012 revenues–some four times O’Connor’s estimate of revenue the bank lost from the Durbin Amendment, For JPMorgan Chase, the implied cost would be $5.38 billion, more than five times the $1 billion the bank lost to Durbin, according to O’Connor’s estimate. For Bank of America, the implied cost would be $3.68 billion, nearly double the $1.9 billion O’Connor estimates the bank lost to Durbin. Citigroup, essentially unaffected by Durbin, would take a $3.02 billion hit if credit card interchange fees fell to .5%.

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Spokespeople for Bank of America, JPMorgan, Citigroup and US Bancorp declined to comment.

The antitrust case is in many ways a sequel to a 1996 class action lawsuit led by Wal-Mart Stores (WMT) and Limited Brands (LTD) against Visa and MasterCard. The settlement in that case included more than $3 billion in monetary damages, as well as changes in business practices worth $25 billion “conservatively,” according to a Nov. 16 report by Deutsche Bank analyst Bryan Keane. Many antitrust experts believe it to be the largest antitrust settlement in history.

While that case led to lower interchange fees for debit cards, Visa and MasterCard increased credit card fees “to offset this decline and thus increased overall transaction costs for merchants,” according to Keane’s report. The present case, set to go to trial Sep. 12, will be heard by Judge John Gleeson of the U.S. Eastern District, the same judge who approved the Wal-Mart settlement. Judge Gleeson’s involvement “may play out favorably for the plaintiff,” Keane writes in his report.

The current case will be “much more expensive” to Visa and MasterCard than the Wal-Mart case, assuming it goes forward, according to Henry Polmer, an attorney who specializes in payments systems issues and has represented both merchants and large banks on separate matters.

The plaintiffs, which include Payless ShoeSource, the National Association of Convenience Stores and the National Restaurant Association, among many others, argue that the banks, Visa and MasterCard have illegally colluded to charge fees for credit card transactions that are far higher than an open, competitive market would dictate they should be. Ten individual plaintiffs, including The Kroger Co. (KR), Walgreen Company (WAG) and some other large chains, have opted out of the class, and MasterCard stated in its latest quarterly earnings filing it has made “substantial progress” in settlement talks with those plaintiffs. However, they represent less than 5% of the purchase volume of the class plaintiffs, and “there has not been similar progress,” with the class plaintiffs, whose settlement demands “remain unacceptable” given the size of the monetary demands and “unacceptable changes to MasterCard’s business practices,” according to the filing.

The class plaintiffs’ claim argues banks’ decision to spin off MasterCard and Visa through initial public offerings in 2006 and 2008 was a disingenuous effort to avoid the appearance of a monopoly. It seeks compensation for alleged overcharges “for the fullest time period permitted,” by statutes of limitations and the Wal-Mart settlement (thought to be 2004). The claim also requests defendants be found in violation of antitrust laws and barred from violating those laws in the future. - continue reading

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NY AG Eric Schneiderman Puts Up $1M to Defend Foreclosures

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Piggybankblog posted on 01/13/12

Piggybankblog posted picture

Cross linked story with 4closurefraud.org

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NYS AG puts up $1M to defend foreclosures

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State Attorney General Eric Schneiderman has announced his office will fund $1 million in foreclosure prevention services to aid New Yorkers struggling through the foreclosure crisis.

Schneiderman issued a Request for Applications (RFA) seeking bids from non-profit legal services and legal aid organizations to provide direct legal services to homeowners in foreclosure or at imminent risk of foreclosure.

“As our state faces another tight budget year, we must be creative and aggressive in our efforts to support working families who are struggling to stay in their homes,” Schneiderman said in a release announcing the monies. “This funding will provide thousands of New Yorkers with the legal expertise they desperately need to defend their rights and avoid falling prey to unscrupulous mortgage servicers or foreclosure mill law firms filing fabricated or robosigned documents. My office will continue to use every tool available to us to protect homeowners and all vulnerable New Yorkers.”

The $1 million will come from unspent dollars from a 2006 settlement between the Attorney General’s Office and Ameriquest Mortgage, Co.

Rest here…

The guidelines for applying and the application will be posted in the New York State Contract Reporter, www.nyscr.org, and will also be available on the attorney general’s website, www.ag.ny.gov/bureaus/budget_fiscal/procurement.html, later this week.

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Bank of America, Citigroup Face Billions In Losses in Antitrust Case (Update 1)

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Piggybankblog posted on 01/13/12

Piggybankblog posted picture

Cross linked story with finance yahoo.com

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Bank antitrust story updated with additional details in final paragraph..

NEW YORK (TheStreet) — Private antitrust litigation pitting some five million retailers against Visa , MasterCard , and 13 large banks, including Bank of America and Citigrouphas slipped under the radar of many analysts and investors who follow those companies, but the case may deliver a multi-billion dollar shock to bank bulls in the coming months.

Aside from Bank of America and Citigroup, the other banks that appear to have the most at stake as a result of the litigation in the U.S. Eastern District of New York are US Bancorp and JPMorgan Chase . All four face billions in potential losses.

For JPMorgan Chase, the implied cost would be $5.38 billion, more than five times the $1 billion the bank lost to Durbin, according to Deutsche Bank analyst Matt O’Connor.

Estimates of the potential cost of a settlement of the antitrust case vary dramatically–from a few billion dollars into the hundreds of billions. At least as worrisome to the financial companies, according to Deutsche Bank research, is the risk that a settlement or judge’s ruling could take the 2% “interchange” fees banks and card companies charge retailers on credit card transactions to as low as .5%, That would equal the rate in Australia, but still be higher than the .3% charged in the European Union, according to a report by Sanford Bernstein analyst Rod Bourgeois.

The impact of such a change would be several times as costly as the Durbin Amendment, which caps fees banks can charge on debit cards and is one of the new rules most hated by the big banks.

According to a Jan. 4 report by Deutsche Bank analyst Matt O’Connor, reducing credit card interchange fees by 75% would cost US Bancorp about $1.2 billion of 2012 revenues–some four times O’Connor’s estimate of revenue the bank lost from the Durbin Amendment, For JPMorgan Chase, the implied cost would be $5.38 billion, more than five times the $1 billion the bank lost to Durbin, according to O’Connor’s estimate. For Bank of America, the implied cost would be $3.68 billion, nearly double the $1.9 billion O’Connor estimates the bank lost to Durbin. Citigroup, essentially unaffected by Durbin, would take a $3.02 billion hit if credit card interchange fees fell to .5%.

Spokespeople for Bank of America, JPMorgan, Citigroup and US Bancorp declined to comment.

The antitrust case is in many ways a sequel to a 1996 class action lawsuit led by Wal-Mart Stores and Limited Brandsagainst Visa and MasterCard. The settlement in that case included more than $3 billion in monetary damages, as well as changes in business practices worth $25 billion “conservatively,” according to a Nov. 16 report by Deutsche Bank analyst Bryan Keane. Many antitrust experts believe it to be the largest antitrust settlement in history.

While that case led to lower interchange fees for debit cards, Visa and MasterCard increased credit card fees “to offset this decline and thus increased overall transaction costs for merchants,” according to Keane’s report. The present case, set to go to trial Sept. 12, will be heard by Judge John Gleeson of the U.S. Eastern District, the same judge who approved the Wal-Mart settlement. Judge Gleeson’s involvement “may play out favorably for the plaintiff,” Keane writes in his report.

The current case will be “much more expensive” to Visa and MasterCard than the Wal-Mart case, assuming it goes forward, according to Henry Polmer, an attorney who specializes in payments systems issues and has represented both merchants and large banks on separate matters.

The plaintiffs, which include Payless ShoeSource, the National Association of Convenience Stores and the National Restaurant Association, among many others, argue that the banks, Visa and MasterCard have illegally colluded to charge fees for credit card transactions that are far higher than an open, competitive market would dictate they should be. Ten individual plaintiffs, including The Kroger Co. , Walgreen Companyand some other large chains, have opted out of the class, and MasterCard stated in its latest quarterly earnings filing it has made “substantial progress” in settlement talks with those plaintiffs. However, they represent less than 5% of the purchase volume of the class plaintiffs, and “there has not been similar progress,” with the class plaintiffs, whose settlement demands “remain unacceptable” given the size of the monetary demands and “unacceptable changes to MasterCard’s business practices,” according to the filing.

The class plaintiffs’ claim argues banks’ decision to spin off MasterCard and Visa through initial public offerings in 2006 and 2008 was a disingenuous effort to avoid the appearance of a monopoly. It seeks compensation for alleged overcharges “for the fullest time period permitted,” by statutes of limitations and the Wal-Mart settlement (thought to be 2004). The claim also requests defendants be found in violation of antitrust laws and barred from violating those laws in the future.

More concretely, Bourgeois believes they are seeking either a fee reduction or new terms to foster competition. K. Craig Wildfang of Robins, Kaplan, Miller & Ciresi, the lead attorney representing the class plaintiffs, declined to comment on settlement talks, or to provide specifics on his clients’ demands. Calls to Richard Arnold, an attorney with Kenny Nachwalter, P.A. representing the individual plaintiffs, were not returned.

While the Justice Department settled an antitrust case against Visa and MasterCard in 2010, that case was more narrow than this one–focusing on retailers’ ability to offer incentives to customers to steer them toward different forms of payment. A related case against American Express, is still pending. A Justice Department spokeswoman declined to comment on why the government has not brought a price-fixing case against the card companies or whether it might do so in the future.

Polmer, the payment systems attorney, believes the government may have avoided the price fixing issues because in the wake of the MasterCard and Visa IPOs it is more difficult to prove collusion between those companies and the banks.

“They can say ‘We’re not fixing prices. We have been for many years now independent publicly-traded companies and we make our own decisions about what we want interchange to be if you’re a part of our system,’” Polmer says. “I think there are lots of holes in that argument, but that’s their argument.”

The plaintiffs make several counterarguments, one of the more compelling of which is that Visa’s “member banks”–which is the way the Visa refers to the banks that assume credit risk for charges made on the cards and are also Visa shareholders –cannot sue Visa over interchange fees or anything else.

The plaintiffs’ claim cites a Visa USA regulation stating that “Visa has no liability of any nature to any member arising from any cause or circumstance.”

Estimates about the possible costs of the case to financial services companies vary dramatically. Deutsche Bank’s Keane writes on page six of his 14-page report on the litigation that “a $4.2 billion liability limit could be on the lower end.” Three sentences later, he writes that “damages could total a couple of hundred billion dollars.” A Deutsche Bank spokeswoman said Keane was not available to discuss his report.

To Keane’s credit, however, he is one of only a small number of analysts who have followed the case in detail.

One of the reasons the case may have fallen through the cracks is that there do not appear to be any analysts who cover Visa and MasterCard, considered part of the “financial technology” sector, as well as the big banks, which are a sector unto themselves where Wall Street research is concerned. Financial technology analysts have tended to pay more attention to the case, but they haven’t sounded the alarm because many who follow the sector believe the brunt of the settlement cost will be borne by the banks.

Indeed, Visa states in its 10-K that it has something called a “retrospective responsibility plan,” which consists of “several related mechanisms designed to address potential liability under certain litigation.”

One of those “mechanisms” is a litigation escrow account Visa has had since at least 2008, the year of its initial public offering. On Dec. 23, Visa disclosed it had added $1.565 billion to the account, meaning it now stands at more than $4 billion.

In a neat accounting maneuver, increasing the size of the account actually led to a decrease in Visa’s outstanding shares. That caused Goldman Sachs analysts to raise their earnings estimateson Visa.

By Visa’s own admission, the retrospective responsibility plan is complex, critical to the company’s financial health and–wait for it–subject to failure.

Visa’s 10-K states that “these mechanisms are unique, complicated, and tiered, and if we cannot use one or more of them, this could have a material adverse effect on our financial condition and cash flows, or, in certain circumstances, even cause us to become insolvent.”

Translation: the plan is really too complicated to explain, but it protects us–unless it doesn’t, in which case shareholders may lose their entire investment.

A spokeswoman for Visa declined to comment, though according to Keane’s report Visa’s class A shareholders won’t be impacted by the cost of a cash settlement unless Visa’s part of the payment turns out to be greater than $13.7 billion. Instead, the funds will come largely from the big banks that comprise Visa’s Class B shareholders.

Bank of America states in its 2010 10-K that it would have to pay 11.6% “of the monetary portion of any comprehensive Interchange settlement.”

Citigroup also mentions the issue in its 10-K, noting that “as of December 31, 2010, Citigroup carried a reserve of $254 million related to certain of Visa USA’s and MasterCard’s litigation matters.”

JPMorgan’s 10-K gives no specific numbers regarding its exposure, but notes that, “based on publicly available estimates, Visa and MasterCard branded payment cards generated approximately $40 billion of interchange fees industry-wide in 2009.”

Those numbers cited by JPMorgan would appear to point the way to a very large settlement, since the case covers eight years and counting–from 2004 through the present. Eight times $40 billion is $320 billion, and an influential 2005 report on price-fixing by Purdue University economics professor John Connor that looked at 700 cartels going back to the 1600s found a median overcharge rate of 25.5%. But even if one assumes an overcharge of just 10%–the figure used by the Justice Department in its antitrust cases–that would suggest $32 billion of overcharges over eight years. That number, however, would be trebled, as is the rule in antitrust cases, meaning damages could conservatively be estimated at $96 billion. If Bank of America had to pay roughly 10% of that, as per its 10-K, the bank would have to cough up $9.6 billion.

“We do not agree with your projections about the bank’s potential exposure,” wrote Bank of America spokeswoman Shirley Norton via email.

But the plaintiffs’ lawyers led by Wildfang are not the type to be satisfied with a small settlement, according to Robert Lande, the Venable Professor of Law at the University of Baltimore.

“They are all serious heavyweight attorneys,” says Lande.

Also keeping a close eye on the case is Bert Foer, president of the American Antitrust Institute (AAI), a non-profit think tank based in Washington, D.C.

“Reformation of the credit and debit card infrastructure would have a significant impact on commerce going forward,” he said.

The next development in the case, expected any day, would be Judge Gleeson’s ruling on whether the plaintiffs constitute a class for the purposes of litigation.

While class certification typically determines whether or not plaintiffs go forward with a case, the situation is different in this instance since the attorneys and the class representatives “seem to be committed to going forward with a trial even if they don’t get certified as a class,” according to one antitrust expert not involved in the case who says he has discussed it with one of the plaintiff’s attornies. Lead plaintiffs’ attorney Wildfang did not respond to an email message seeking to confirm those intentions.

If a series of strong plaintiffs that does not constitute a class goes on racking up legal victories “it gets to be a very messy situation,” says AAI’s Foer. “There may be an advantage for everybody to get it certified so it can be dealt with once.”

Even if it is dealt with in the U.S., however, banks operating in other countries will not be able to rest easily, according to the report from Deutsche Bank’s Keane.

“We believe merchants globally are intently watching how the U.S. anti-trust lawsuit resolves, and any settlement could influence these lawsuits, potentially triggering lawsuits in the international markets,” he writes.

Other defendants in the case are Capital One Financial , Wells Fargo , PNC Financial , Fifth Third Bancorp , SunTrust Banks , HSBC and Barclays Plc , as well as First National of Nebraska and Texas First Bank.

– Written by Dan Freed in New York. Follow this writer on Twitter.

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Attorneys General, Frustrated With National Foreclosure Settlement, Consider Alternate Course

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Piggybankblog posted on 01/12/12

Cross linked with huffingtonpost.com

Attorneys general or representatives from nearly 15 states met in Washington, D.C., on Tuesday to discuss and share different enforcement options and strategies around various mortgage-related issues, according to sources familiar with the conversation.

The meeting was prompted by the slow pace at which a national foreclosure settlement led by the Obama administration is progressing, and is likely to be the first in a series, said these sources.

The participating attorneys general, from states including California, Nevada, Delaware, Massachusetts and New York, discussed how they could possibly join together to investigate and potentially file lawsuits against abusive mortgage lenders and servicers. Principals or representatives also attended from Hawaii, New Hampshire, Missouri, Mississippi, Maryland, Kentucky and Minnesota.

“This past Tuesday, a group of like-minded Attorneys General met in D.C. to discuss ongoing and future investigations into the mortgage finance and foreclosure industries,” said Delaware Deputy Attorney General Ian McConnel.

“The talks weren’t just about investigations,” said a source with knowledge of the discussions. “They were also about the attorneys general offices feeling uninvolved in a process by which their federal colleagues have been negotiating on their behalf.”

The administration, along with a coalition of state law enforcement officials, is currently pursuing a settlement with big banks over their role in the practice of “robo-signing” and other alleged forms of mistreatment of struggling homeowners.

After the existence of the practice came to light in October 2010, attorneys general from all 50 states banded together with the federal government to punish five large financial institutions — Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial — for mortgage-related misconduct, including robo-signing and failing to provide mortgage modifications to eligible homeowners. As it currently stands, that punishment would take the form of a civil settlement worth up to $25 billion. The deal would reform the mortgage servicing industry and require banks to offer relief to homeowners in the form of modifications, principal write-downs and refinancing, among other options.

The negotiations, led by Iowa Attorney General Tom Miller, hit a snag this summer when several attorneys general — most notably Eric Schneiderman of New York and Kamala Harris of California — objected that the deal was too narrowly focused on robo-signing and mortgage servicing and that it would release banks from liability for too much potential wrongdoing. Schneiderman and Biden called for a more thorough investigation of how home loans were originated and sold to investors.

This latest discussion, which occurred outside the national settlement talks, is yet another signal that the 50-state settlement, announced with much fanfare more than a year ago, is in trouble, and that individual Attorneys General are looking to take action on their own.

In October 2011, Delaware Attorney General Beau Biden filed suit against Mortgage Electronic Registration System, claiming the company intentionally makes it harder for borrowers to stop a foreclosure. In December, Massachusetts Attorney General Martha Coakley filed a lawsuit against five of the largest U.S. banks, accusing them of deceptive foreclosure practices. Also in December, Nevada AG Catherine Cortez Masto filed suit against Lender Processing Services for deceiving Nevada homeowners.

The mortgage servicers have not been engaged in these conversations, said a source familiar with these discussions.

This report was updated with further information about the meeting.

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Is Fla AG Bondi Owned by the Banks?

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Piggybankblog posted on 01/12/12

Piggybankblog posted picture

Cross linked story with livinglies

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SEE FULL ARTICLE ON NAKEDCAPITALISM.COM

Hatchet Job by Florida Inspector General to Justify Firing of Two Lawyers for Foreclosure Fraud Investigations

by Yves Smith

The usual stereotype of corruption on the US state level is that, depending on the day, Louisiana or Mississippi tops the list. But the cesspool created by the widening foreclosure crisis in Florida puts anything in kudzu-land to shame.

The object lesson is a statement issued by the Florida Office of the Inspector General concerning its decision not to investigate the firing (or more accurately, resignation under duress) of two lawyers in the attorneys general’s office, June Clarkson and Theresa Edwards, who believe they were canned for political reasons, namely, for being too aggressive in investigating foreclosure abuses. Note that these firings came shortly after they received exemplary performance reviews.

Now narrowly, there may indeed be nothing to investigate relative to their firing, in that workers in the US have pretty close to zero rights and a boss can indeed fire someone simply for not sharing his sense of priories. But there is a more general question of public interest as to whether a firing in a public office was indeed politically motivated, particularly if the investigators were ruffling the feathers of parties that the AG did not want to annoy (and as the brief one page conclusion notes, Florida does have statutes against “misuse of a public position” but query how that is interpreted in practice).

As we will discuss further, this astonishingly shoddy document tries to bury the matter by publishing write-ups of long complaints by the parties immediately involved in the firing (Associate AG Richard Lawson, Assistant AGs Trish Conners and Carlos Muniz) and by one of the parties targeted, namely, a letter from Lender Processing Services. Regular readers of this blog will know LPS is engaged in questionable conduct and has been the subject of investigations by the US Trustee’s office, a branch of the Department of Justice. It is currently the target of a wide-ranging lawsuit by the Nevada State attorney general Catherine Cortez Masto, an investigation by the FDIC, has signed a consent decree with the OCC for questionable conduct, and is subject of private lawsuits, including one joined by the Chapter 13 trustees as a class, for impermissible legal fee sharing. (We’ve also described how LPS lied in SEC filings).

Effectively, this “review” is an effort at reputation/character assassination via the release of pretty much only one side of a “he said, she said” (Clarkson and Edwards were given a brief phone interview which was limited to two conversations Lawson had with them about their performance; they were given no opportunity to contest the allegations made in the subsequent interviews, which were not just with Lawson, Conners, and Muniz, but also five other members of the AG’s office).

To put it mildly, if you read the 85 page document and didn’t know the context (the extensive, widespread evidence of bad conduct and strained pleadings by the foreclosure mills and LPS, and the prior tip top reviews received by Clarkson and Edwards), you’d think they were fuckups of the first order and were lucky to have jobs. This is heresay presented as unvarished truth, and the unsupported (and as we will discuss later, often obviously untrue or at best misleading) charges extend to two Florida foreclosure fraud investigators, Lisa Epstein and Lynn Szymoniak.

To back up and give a bit more context first (and do read the very good overview by Dave Dayen), the Florida attorney’s general office recently underwent a regime change. The old AG, Bill McCollum, was a Republican but nevertheless launched some investigations into foreclosure abuses, specifically against the biggest foreclosure mills in the state. He left leave last January, replaced by Pam Bondi, who clearly has a much more conciliatory posture towards the mortgage industrial complex (she is on the executive committee of the now multi-state foreclosure settlement effort). In keeping, the old head of the economic crimes division was replace by the aforementioned Richard Lawson, who was in the business of defending white collar criminals, primarily banksters. And he made it clear that he wanted the fraud investigations to be treated “with great sensitivity.” I have to tell you, both in context and based on his actions, that means “go easy and do everything you can to protect the reputations of the parties charged.” Do you think this is even remotely the right priority for the head of an economic crimes unit?

The irony of this report are the repeated complaints about the “unprofessional” conduct of Clarkson and Edwards. Given that the IG considers a barely ordered document dump to be tantamount to a report, I find it hard to believe that the standard of professionalism among legal officers in the Florida government is measurable, let alone high enough for the two canned attorneys to fall short of it.

Similarly, for anyone who has been in the private sector (and that is where Lawson came from) the conduct of the firing was highly irregular. It’s normal for even routing firings to go through a process: the employee is given a warning and/or put on probation, with a witness present, they are told what concrete steps they need to take to improve performance, and notes of the conversation are entered into their personnel file. And most important, firings are always done with a witness present. Instead, Lawson had a one conversations with Edwards and Clarkson, and seems to conveyed his unhappiness primarily through their immediate boss, Robert Julian, who found Clarkson and Edwards to be “invaluable.” From what I can tell, assistant chief AG Robert Julian fired both Clarkson and Edwards verbally via Edwards alone, again a mind-boggling procedure. Lawson operated like a rank amateur, yet keeps harping on “professionalism.” More than a bit of projection at work?

There may be validity in the some substantive complaints. For instance, Lawson claims the duo mistakenly said the SEC was going after LPS when it was the FDIC who was probing LPS. They also called Fidelity a f/k/a (formerly known as) of LPS when it is the reverse (LPS was spun out of Fidelity). But these mistakes were in internal communications, and while they might be worrisome, what matters is what gets out the door. Another complaint is the case files being transferred from Clarkson and Edwards another attorney being in disorder. But we have no context. If Lawson made the assignment abruptly and didn’t give them Clarkson and Edwards time to organize them (and the state apparently lacks a document management system), it shouldn’t be a surprise that the materials were not well organized. In addition, at various points Lawson asked these investigators if they had evidence of allegations made against LPS, such as not being paid by the servicer, and Clarkson and Edwards saying “no”. Just because they did not have evidence in hand did not mean the allegations were untrue and not provable.

The reason I view even these complaints with skepticism is that much of what Lawson says that can be evaluated ranges from strained to embarrassing. Here are some examples.

In the “you cannot make this up” category, Lawson, a law enforcement official, defends forgeries:

 

Huh, is he SERIOUSLY trying to say that if, say, the janitor signs a corporate check he found lying around the office to pay the company electrical bill, it isn’t fraud? The knowledge in our culture that people sign documents only in their own name is so widely shared that it seems utterly implausible that ANYONE, let alone people in the business of preparing documents involved in legal procedures, could think forgeries are legitimate. The LPS filings by Masto have barely-above-minimum wage witnesses saying they were uncomfortable with “surrogate signing,” a recent Orwellianism for forgery, even after multiple management assurances that it was fine. Lawson’s formulation gets us into Humpty Dumpty “forgery is not forgery if I say it is not forgery” land. He is trying to wind the clock back to before the 1677 Statue of Frauds.

And we have this remark:

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