Since we're never going to see the criminal indictments these weasels deserve, would it be too much, in light of current developments, that the president and other administration officials stop throwing in little digs at homeowners for their miniscule role in the massive and systemic mortgage fraud that crashed the economy? I can't tell you how that makes my blood boil in light on the ongoing rape and pillaging of those unfortunate enough to be holding mortgages with these bastards:

Oct. 9 (Bloomberg) -- Wells Fargo & Co. was sued by the U.S., which alleged the bank made reckless mortgage loans that defaulted and forced the federal government to pay hundreds of millions of dollars in insurance claims.

The government seeks damages and civil penalties under the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 for alleged misconduct spanning more than a decade related to the bank’s participation in a Federal Housing Administration program, U.S. Attorney Preet Bharara in Manhattan said in a statement. The complaint was filed today in New York federal court.

“As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,” Bharara said in the statement.

The suit undermines San Francisco-based Wells Fargo’s reputation as a lender that avoided some of the industry’s worst underwriting practices and threatens to compound the bank’s costs as the government completes probes of the housing bubble’s collapse.

Where does the Post get such lousy, lazy reporters? Just a few months ago (see video), Wells was fined $175 million for steering qualified minority buyers to subprime mortgages. And in 2008, a Louisiana bankruptcy court hit Wells with $3.1 million in punitive damages - for one bad loan. As Yves Smith wrote then:

Wells, as we have pointed out repeatedly, has an annoying habit of piously claiming it is better than other servicers when it engages in the same indefensible conduct as its peers. So if you were to take Wells at its word, the conduct of other servicers is at least as bad as what has taken place in this jurisdiction, if not worse. Remember, servicers are highly routinized operations, so if something, it is almost certain to be standard practice. And Wells has admitted that in this case.

[...] The latest example of Wells bad behavior in Magner’s courtroom that has come to a resolution of sorts is another case of Wells overcharging a borrower. In this suit, Jones v. Wells Fargo, filed in 2007, involved a borrower having to sue Wells to recoup overcharges by Wells plus actual damages, plus a request for punitive damages. The ruling sets forth the sorry history in some detail and I strongly suggest you read it in full.

[...] The word “predatory” is not adequate to describe Wells’ conduct. The bank is not simply willing to steal from consumers, via blatant, institutionalized violations of its own agreements on mortgages and later on bankruptcy plans. It has absolutely no respect for the law, whether it be contracts or court procedures. It’s a band of marauders that our society treats as legitimate because the perpetrators wear suits and can afford to hire lobbyists. And the Federal government and state attorneys general are certain to have emboldened Wells and its brethren by rewarding them rather than treating them like the criminals they are.

Amen!

In Re Jones

This hasn't been a very good week for the one percenters, has it? Anti-NATO protesters chanting outside their cozy dinners, bloggers releasing the details of ALEC's latest schemes, people showing up at Timothy Geithner's door to bitch, bitch, bitch! Don't they know who he is - and who his friends are? I guess the National People's Action and National Domestic Workers Alliance don't really care:

Yesterday, more than 1,000 clergy, homeowners, students, family farmers, unemployed workers and community leaders with National People’s Action and National Domestic Workers Alliance went to Treasury Secretary Timothy F. Geithner’s home to demand he support a Robin Hood tax and a thorough investigation of the bankers who caused the mortgage crisis.

“We didn’t want to be at Geithner’s house,” Bobby Tolbert of VOCAL-NY, an affiliate of NPA and a leader at the action. “But we want a treasury secretary that stands with people over bankers. Geithner has consistently undermined proposals for a Robin Hood tax and stalled the mortgage fraud task force investigation.”

Barb Kalbach, a family farmer and member of Iowa CCI, an NPA affiliate, said community leaders have met with Geithner before but little progress has been made to ease the crushing impact of the mortgage and financial crisis on the American people.

Geithner must “quit protecting the big banks, write down the mortgages and keep us in our homes and stop the foreclosure crisis around the U.S.,” Kalbach said speaking into a microphone while standing on Geithner’s driveway. “Right now, today, he continues to impede the process of investigating the banks that crashed our economy. And he’s blocking a tiny tax of less than half of one percent. It’s small change for Wall Street, but big change for America.”

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Massachusetts AG Martha Coakley announced this week that she's suing the big banks for mortgage fraud. Be still, my heart!

So you can see a noose tightening around the necks of the banks, who would like nothing better than to strike a deal where AGs release them from liability in return for a nominal fee. Not all the AGs are willing to take that step, as detailed above. And now, Coakley, who has been very good on this issue, is out with perhaps the most wide-ranging lawsuit against the big banks over foreclosure fraud. Recall that some favorable court rulings in Massachusetts, including the Ibanez case, have ruled that banks don’t have standing to foreclose in cases where they improperly assigned mortgages. That is part of the case law in Massachusetts, making it a fertile environment in which to pursue this case.

According to the Boston Globe MERS is also named in the lawsuit:

The suit, filed in Suffolk Superior Court, also names the private company Mortgage Electronic Registration System Inc. and its parent, MERSCORP Inc., as defendants, according to the attorney general’s office.

“The AG’s lawsuit seeks accountability for the banks’ unlawful and deceptive conduct in the foreclosure process, including unlawful foreclosures, false documentation and robo-signing, MERS, and deceptive practices related to loan modifications,’’ the news release from Coakley’s office said.

Yves Smith at Naked Capitalism:

GMAC is trying to get other big banks to follow suit. I hope the state and other groups that do substantial financial business with banks (largish churches are also attractive clients) make it clear than any effort to punish the state for enforcing the law will be met by moving their accounts to smaller institutions that respect the law.

From the Wall Street Journal:

GMAC Mortgage, the mortgage lender of Ally Financial Inc., is exiting the vast majority of its lending in Massachusetts a day after the state sued it over its foreclosure practices.

The nation’s fifth-largest mortgage originator said it “has taken this action because recent developments have led mortgage lending in Massachusetts to no longer be viable,” ratcheting up the high-stakes mortgage fight there….

GMAC Mortgage will stop purchasing loans from correspondent lenders and wholesale brokers, which makes up the majority of the company’s business. The lender said it was “disappointed” but that “it has an obligation to manage risks and deploy capital in an appropriate manner and in a way that protects the investment of the U.S. taxpayer.”

Get a load of the sanctimoniousness. Since when do the interests of investors trump the rule of law? In fact, the logic is backwards, since investors are not well protected in a regime where laws are not respected. Does anyone want to invest in, say, Somalia?

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I don't think anyone's surprised. The powers that be have already decided to let the banks off with a slap on the wrist and an exemption from serious criminal prosecution. Who wouldn't take that deal?

Big US banks in talks with state prosecutors to settle claims of improper mortgage practices have been offered a deal that is proposed to limit part of their legal liability in return for a multibillion dollar payment.

Pocket change! One round of yearly bonuses!

The talks aim to settle allegations that the companies – Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial – illegally seized the homes of delinquent borrowers and broke state laws by employing so-called “robosigners”, workers who signed off on foreclosure documents en masse without reviewing the paperwork.

State prosecutors have proposed effectively releasing the companies from legal liability for allegedly wrongful securitisation practices, according to five people with direct knowledge of the discussions.

Some state officials have expressed concern that they have offered the banks far too broad a release from liability. Others say the broad language was perhaps inadvertently crafted and will be tightened as negotiations continue. Participants on both sides stressed the talks remain fluid.

"Perhaps inadvertently." Heh. What a sense of humor!

Still, the banks called the states’ counterproposal, sent to the lenders about a month ago after the companies initially requested an in effect grant of immunity from a raft of alleged civil violations, a “non-starter”.

A "non-starter". You have to love their audacity!

They say the proposals from the state prosecutors will need to be expanded before the banks are willing to reach an accord with government agencies that will involve a probable payment ranging anywhere from $10bn to perhaps as high as $25bn.

The two sides will meet again this week to iron out their differences. They are close to an agreement on future standards governing the servicing of home loans, yet remain far apart on other issues, such as legal liability claims, compliance and enforcement, and the amount of cash it will take to settle the allegations.

It's pretty simple. They want no liability, no compliance and no enforcement. What's to negotiate? They've said what they want, now the prosecutors have to give it to them!

[...] The worry over the states’ counterproposal stems from its treatment of loan documents. The term sheet proposes to release the banks from legal liability over how mortgage documents were maintained, prepared and transferred, people familiar with the matter said.

Though the counteroffer attempts to release the banks from liability with respect to home repossessions, and explicitly states that the release does not include securitisation claims, the language is broad enough in that it could prevent state officials from bringing securitisation claims in the future should they sign up to the agreement.

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I have to say, I really, really hoped that this wouldn't happen. But as I recently noted, it sure sounds like the feds want to sidestep the state attorneys general and let the mortgage bankers off the hook. Happy to be wrong, of course, but David Dayen thinks the same thing. The states still get a whack at their group settlement:

Prepare for a disappointment. As early as this week, federal bank regulators and the nation’s big banks are expected to close a deal that is supposed to address and correct the scandalous abuses. If these agreements are anything like the draft agreement recently published by the American Banker — and we believe they will be — they will be a wrist slap, at best. At worst, they are an attempt to preclude other efforts to hold banks accountable. They are unlikely to ease the foreclosure crisis.

[...] The deals grew out of last year’s investigation into robo-signing — when banks were found to have filed false documents in foreclosure cases. The report of the investigation has not been released, but we know that robo-signing was not an isolated problem. Many other abuses are well documented: late fees that are so high that borrowers can’t catch up on late payments; conflicts of interest that lead banks to favor foreclosures over loan modifications.

The draft does not call for tough new rules to end those abuses. Or for ramped-up loan modifications. Or for penalties for past violations. Instead, it requires banks to improve the management of their foreclosure processes, including such reforms as “measures to ensure that staff are trained specifically” for their jobs. The banks will also have to adhere to a few new common-sense rules like halting foreclosures while borrowers seek loan modifications and establishing a phone number at which a person will take questions from delinquent borrowers. Some regulators have reportedly said that fines may be imposed later.

But the gist of the terms is that from now on, banks — without admitting or denying wrongdoing — must abide by existing laws and current contracts. To clear up past violations, they are required to hire independent consultants to check a sample of recent foreclosures for evidence of improper evictions and impermissible fees.

The consultants will be chosen and paid by the banks, which will decide how the reviews are conducted. Regulators will only approve the banks’ self-imposed practices. It is hard to imagine rigorous reviews, but if the consultants turn up problems, the banks are required to reimburse affected borrowers and investors as “appropriate.” It is apparently up to the banks to decide what is appropriate.

It gets worse. Consumer advocates have warned that banks may try to assert that these legal agreements pre-empt actions by the states to correct and punish foreclosure abuses. Banks may also try to argue that any additional rules by the new Consumer Financial Protection Bureau to help borrowers would be excessive regulation.

The least federal regulators could do is to stress that the agreements are not intended to pre-empt the states or undermine the consumer bureau. If they don’t, you can add foreclosure abuses to other bank outrages, like bailout-financed bonuses and taxpayer-subsidized profits.

I can't even bring myself to hope that mortgage companies will ever face significant consequences for the economic havoc they've wreaked. There have been rumors that the Obama administration has been leaning on the state AGs to get them to lighten up on their penalities; I hope they're just rumors, but I suspect not:

NEW YORK -- The nation's five largest mortgage firms have saved more than $20 billion since the housing crisis began in 2007 by taking shortcuts in processing troubled borrowers' home loans, according to a confidential presentation prepared for state attorneys general by the nascent consumer bureau inside the Treasury Department.

That estimate suggests large banks have reaped tremendous benefits from under-serving distressed homeowners, a complaint frequent enough among borrowers that federal regulators have begun to acknowledge the industry's fundamental shortcomings.

The dollar figure also provides a basis for regulators' internal discussions regarding how best to penalize Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial in a settlement of wide-ranging allegations of wrongful and occasionally illegal foreclosures. People involved in the talks say some regulators want to levy a $5 billion penalty on the five firms, while others seek as much as $30 billion, with most of the money going toward reducing troubled homeowners' mortgage payments and lowering loan balances for underwater borrowers, those who owe more on their home than it's worth.

Even the highest of those figures, however, pales in comparison to the likely cost of reducing mortgage principal for the three million homeowners some federal agencies hope to reach. Lowering loan balances for that many underwater borrowers who owe less than $1.15 for every dollar their home is worth would cost as much as $135 billion, according to the internal presentation, dated Feb. 14, obtained by The Huffington Post.

But perhaps most important to some lawmakers in Washington, the mere existence of the report suggests a much deeper link between the Bureau of Consumer Financial Protection, led by Harvard professor Elizabeth Warren, and the 50 state attorneys general who are leading the nationwide probe into the five firms' improper foreclosure practices, a development sure to anger Republicans in Congress and a banking industry intent on diminishing the fledgling CFPB's legitimacy by questioning its authority to act before it's officially launched in July.

Earlier this month, Warren told the House Financial Services Committee, under intense questioning, that her agency has provided limited assistance to the various state and federal agencies involved in the industry probes. At one point, she was asked whether she made any recommendations regarding proposed penalties. She replied that her agency has only provided "advice."

There was clearly a systemic failure in our finance system, but it required people like Angelo Mizolo to fully exploit it in order to make it collapse. Hopefully this is only the beginning (I'd still like to see Phil Gramm go down):

Angelo R. Mozilo, the self-made man from the Bronx who built Countrywide Financial into the nation’s largest mortgage lender before the credit squeeze hit, has been charged with securities fraud and insider trading in a civil suit brought by the Securities and Exchange Commission.

Citing e-mail messages in which Mr. Mozilo referred to Countrywide loan products as “toxic” and “poison,” S.E.C. officials said that he had misled investors about growing risks in the company’s lending practices from 2005 through 2007. During this time he also generated $140 million in profits by selling stock in the company, the S.E.C. said.

“This is the tale of two companies,” said Robert Khuzami, enforcement director at the S.E.C. “Countrywide portrayed itself as underwriting mainly prime-quality mortgages, using high underwriting standards. But concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk.”

At a news conference announcing its filing of the suit, the most prominent against an executive involved in the mortgage crisis, Mr. Khuzami said the S.E.C. had made it a priority “to pursue cases at the root of the financial crisis.” As the nation’s largest mortgage lender, Countrywide helped fuel the housing boom by offering loans to high-risk borrowers.

So apparently George Bush could have done something to prevent the present economic crisis, but was so obsessed with terrorism, he couldn't see the forest for the proverbial trees. (Or, less kindly, he couldn't walk and chew gum at the same time.)

The FBI was aware for years of "pervasive and growing" fraud in the mortgage industry that eventually contributed to America's financial meltdown, but did not take definitive action to stop it.

"It is clear that we had good intelligence on the mortgage-fraud schemes, the corrupt attorneys, the corrupt appraisers, the insider schemes," said a recently retired, high FBI official. Another retired top FBI official confirmed that such intelligence went back to 2002.

The problem, according to the two FBI retirees and several other current and former bureau colleagues, is that the bureau was stretched so thin that no one noticed when those lenders began packaging bad mortgages into bad securities.

"We knew that the mortgage-brokerage industry was corrupt," the first of the retired FBI officials told the Seattle P-I. "Where we would have gotten a sense of what was really going on was the point where the mortgage was sold knowing that it was a piece of dung and it would be turned into a security. But the agents with the expertise had been diverted to counterterrorism."

The FBI not only lacked the resources, but also never got the tips it needed from the banking regulatory agencies. The Securities and Exchange Commission, the Office of Thrift Supervision and the Office of the Comptroller of the Currency also failed to detect the securities issue, said the first retired FBI official.

"These are very resource-intense cases that take a lot of work by very skilled people," said John Falvey Jr., a former federal prosecutor who currently does white-collar criminal defense work in Boston.

And Falvey said that financial executives who deliberately chose not to learn the facts about dicey mortgage-lending practices in their companies -- who chose to be "willfully blind" to such practices and the subsequent securitization of those mortgages -- could be vulnerable to prosecution for securities fraud.

Both retired FBI officials asserted that the Bush administration was thoroughly briefed on the mortgage fraud crisis and its potential to cascade out of control with devastating financial consequences, but made the decision not to give back to the FBI the agents it needed to address the problem. After the terrorist attacks of 2001, about 2,400 agents were reassigned to counterterrorism duties.

This mass reassignment was first chronicled by the Seattle P-I in the Terrorism Tradeoff, a series of investigative reports beginning in 2007 and stretching into 2008. That administration policy, the P-I reported, resulted in a dramatic plunge in FBI criminal investigations and referrals for prosecution. And recent data from Syracuse University researchers shows the problem has worsened.

Just think how much money and effort it would have saved if the Bush administration had only enforced the rules that were already in place!

Dec. 21 (Bloomberg) -- The FBI has had to shift agents from terror and other crime work to Wall Street investigations including the alleged Bernard Madoff Ponzi scheme, said David Cardona, head of the New York office’s criminal division.

The Federal Bureau of Investigation has had to engage in “triage” in responding to successive frauds involving subprime mortgages, auction-rate securities and Madoff, who prosecutors said confessed this month to bilking investors out of $50 billion, Cardona said in an interview yesterday.

“We have to work those cases which we think pose the greatest threat,” he said. “In this case, it’s a threat to the financial system and Wall Street. It’s the same with mortgage fraud. I’m ramping these squads up.”

Special Agent Rachel Rojas, who once worked on tracing terrorist financing and al-Qaeda, now oversees 15 agents investigating mortgage fraud, said Cardona, a career agent with 23 years at the bureau who once worked as a New York state accountant. He declined to say how many other agents he has reassigned from anti-terror work to financial-crimes.