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HUD Audits Show Five Biggest Servicers Defrauded Taxpayers

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This revelation, that HUD audits of the biggest servicers over a mere two-month period, showed extensive fraud, is proof that mortgage abuses were widespread. It also establishes that the effort by Tom Miller to settle the 50 state attorneys general investigation quickly and and the recent “see no evil” Federal consent orders are a cover up. The fact that HUD found extensive misconduct over a similar time frame as the Foreclosure Task Force, which Assistant Treasury Secretary Michael Barr described as a ““11-agency, 8-week review of servicer practices, with hundreds of investigators crawling all over the banks” proves that the latter to be pure regulatory theater. And as we’ve noted, the Tom Miller-led effort has done no investigations, guaranteeing that the negotiators would have no bargaining power.

From Shahien Nasiripour at Huffington Post:

A set of confidential federal audits accuse the nation’s five largest mortgage companies of defrauding taxpayers in their handling of foreclosures on homes purchased with government-backed loans…

The five separate investigations were conducted by the Department of Housing and Urban Development’s inspector general and examined Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial…

The audits accuse the five major lenders of violating the False Claims Act, a Civil War-era law crafted as a weapon against firms that swindle the government. The audits were completed between February and March, the sources said. The internal watchdog office at HUD referred its findings to the Department of Justice, which must now decide whether to file charges…

The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.

Two of the firms, including Bank of America, refused to cooperate with the investigations, according to the sources. The audit on Bank of America finds that the company — the nation’s largest handler of home loans — failed to correct faulty foreclosure practices even after imposing a moratorium that lifted last October. Back then, the bank said it was resuming foreclosures, having satisfied itself that prior problems had been solved.

Yves here. This demonstrates that the banks have not cleaned up their bad practices despite promises to do so. And notice the “improper documents” issue got national attention, led several major servicers to halt foreclosures in multiple states and were put under the spotlight in a series of Congressional hearings. The banks piously claimed these were mere mistakes and they would fly straight. This exam shows them to have lied, pure and simple.

And Wells Fargo which has repeatedly and annoying claimed to be better than the other banks, is revealed to be worse, that its abuse can’t be pinned on low level employees or lax supervision of foreclosure mills:

….the Wells Fargo investigation concludes that senior managers at the firm, the fourth-largest American bank by assets, broke civil laws. HUD’s inspector general interviewed a pair of South Carolina public notaries who improperly signed off on foreclosure filings for Wells, the sources said.

It also appears the 50 state attorneys general effort is falling apart as individual states decide to pursue their own actions. We said early on the banks were nuts not to pay $20 billion and be done with the matter. They had a weak and overeager negotiator in Miller and mistakenly overplayed their hand, forgetting that the fact that he was doing such a piss poor job meant an overly-bank-favorable deal would not fly with his fellow AGs. Back to the article:

The state of Illinois has begun examining potentially-fraudulent court filings, looking at the role played by a unit of Lender Processing Services. Nevada and Arizona already launched lawsuits against Bank of America. California is keen on launching its own suits, people familiar with the matter say. Delaware sent Mortgage Electronic Registration Systems Inc., which runs an electronic registry of mortgages, a subpoena demanding answers to 75 questions. And New York’s top law enforcer, Eric Schneiderman, wants to conduct a complete investigation into all facets of mortgage banking, from fraudulent lending to defective securitization practices to faulty foreclosure documents and illegal home seizures.

Finally, we are seeing steps in the right direction. Let’s hope the momentum continues.

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31 comments

  1. Social Apocalypse

    Washington State’s Attorney General, Rob McKenna and his team are to be commended. They are ALSO doing a GREAT job of rooting up VERY sinister acts by a handful of foreclosure mills who share ownership with foreclosure trustees… they are unraveling that hairball as we speak, and the principles of those firms better just get out and spend it while they’ve got it, because, if they listen, they will hear the hounds approaching.

    1. dollared

      Link, please. Last time I checked Rob McKenna was wasting everybody’s time and money suing to stop health care reform, and headlining Tea Party.

      I would love to see some proof that he actually is doing his job.

    2. nonclassical

      McKenna is simply posturing against Jay Inslee, who will run
      and win Washington State’s next gubernatorial campaign. Jay
      can be viewed on video=C-Span standing firmly, time and time
      again, against Bushit, in Congress..

  2. Bluster Boy

    “The internal watchdog office at HUD referred its findings to the Department of Justice, which must now decide whether to file charges.”
    Decide whether to file charges? Is this what William Black predicted?

  3. MIWill

    “The internal watchdog office at HUD referred its findings to the Department of Justice, which must now decide whether to file charges…”

    hahaha that’s a good one.

  4. readerOfTeaLeaves

    And notice the “improper documents” issue got national attention, led several major servicers to halt foreclosures in multiple states and were put under the spotlight in a series of Congressional hearings. The banks piously claimed these were mere mistakes and they would fly straight. This exam shows them to have lied, pure and simple.

    Lied.

    Not a lot of wiggle room here.

  5. xlwood1

    So…how many years have you been posting stories about this? Regardless of the outcome of this story, I believe that we the sheeple owe you big thank you for all your work, and for putting up with small, but constant negative feedback from some individuals. Those people remind me of the “humans” that help the vampires in some stories my wife read. Again…thank you.

  6. Tom Key

    Fraud is actionable, both civilly and criminally. Every city attorney, and a hundred thousand private practitioners, should get involved. The banksters are retiring in our best neighborhoods. Seize THEIR homes.

  7. ArkansasAngie

    I’d like the sudits to made public. Let the American people decide if it’s fraud.

    Fraud … like porn … you’ll know it when you see it.

    1. nonclassical

      It is my understanding that at the end of Clinton era, Texas
      RethugliKan Senator Phil Gramm added a flyer to legislation,
      making it ILLEGAL to AUDIT banks…

  8. MIchaelC

    This looks to me like signal that something good may finally be afoot (and has been happening below our radar for a while).

    Read Adam Levitan’s 5/11 post as a complementary piece to this post, especially as it relates to your “We said early on the banks were nuts not to pay $20 billion and be done with the matter” comment.

    I haven’t seen his interpretation of what’s really been going on with the AGs anywhere else, but found it intriguing.

    http://www.creditslips.org/creditslips/2011/05/the-servicing-fraud-settlement-the-real-game.html#tp

    1. Firean

      Servicing Fraud Settlement: the Real Game, by Adam Levitin is great read, long and worthwhile, fills in much detail, wish there was more.

      @ MIchaelC Thank You for posting the link, will bookmark the site and follow.

  9. Francois T

    We said early on the banks were nuts not to pay $20 billion and be done with the matter. They had a weak and overeager negotiator in Miller and mistakenly overplayed their hand…

    Say what? I am very glad the banks refused to pay the $20 billion. They are so accustomed to get away with anything that they made a colossal mistake this time. They are dealing with States.

    States are much closer to their constituents than CONgress and the Administration. States can hardly play the left v right, us v them game ad vitam aeternam like the asshats in DC. Plus, the prospect of suing big banksters who did so much damage to folks ought to be the wet dream of any sensible AG who has political ambitions.

    Furthermore, if enough States join the party, what do you think it’s gonna look like for The Most Transparent And Honest Administration Ever?

    1. Rex

      “The Most Transparent And Honest Administration Ever?”

      If only these scumbags could be brought up for fraud since it appears they never had any intention to deliver on any of the warm and fuzzy promises that got them installed.

      Of course, if it was possible to call politicos out for lying, D.C. would be emptied.

      1. Francois T

        In a sense, Barry has it coming at him bad. Just read Chris Hedges latest column on Prof. Cornel West’s take on BHO. It oughta be painful for da Brotha at 1600 Pennsylvania Avenue.

    2. aletheia33

      i too would like to know who i can call at the federal ag office to urge prosecution on this.

      also, one can call one’s own state ag. i will do so and urge him to abandon the 50-state kabuki and go after the perps on his own, our state needs money too. i would think that citizens informing ags they want to see prosecutions can have some spurring effect. in fact, the “progressive” orgs. should be calling on their members now to be making these phone calls or sending a petition to holder.

      who knows, maybe certain ags who want to actually do something relating to justice will now band together to support each others’ investigations and cases. (or maybe have already begun to do so.)

  10. Jack Parsons

    Don’t be surprised by the delay in finding a real auditor. The Pecora Commission was the fourth blue-ribbon panel make to explain the great rise&crash in the 20′s.

  11. Ralph Musgrave

    One moral is: “Don’t subsidise home ownership”.

    Subsidy always and automatically leads to fraud, whether it’s EU agricultural subsidies or anything else. Second, there is no reason to prefer home ownership to renting. Germany is about the wealthiest country in Europe and has the lowest level of home ownership. Many Germans prefer renting. Are they doing something wrong?

    1. Rex

      “Don’t subsidise home ownership”.

      What did subsidizing have to do with it? If you had said, don’t securitize mortgage money, I might go along with you.

    2. ella

      Subsidizing home ownership has occurred for decades in the US with mainly beneficial consequences and few negative consequences. It was not until the FED began to deregulate a la Ayn Rand, the repeal of Glass-Steagall, the Commodities Modernization Act, the Bush Administration’s Office of the Controller of the Currency (who eliminated the state’s right to control banking practices in their jurisdictions, Bush’s so called Ownership Society, Financial Engineering and the financialization of the economy, the de-taxation of hedge funds and wall street and the Bankruptcy Reform Act (granting special privilege to derivatives collateral)that we had a credit and leverage bubble. It is the result of this deregulation that caused the credit and leverage bubble base on real estate.

      1. Stupendous Man - Defender of Liberty - Foe of Tyranny

        You left out the revision of the UCC, and adoption by most states, that repealed 3-804, the revamping of the BK codes, etc.

  12. mannfm11

    When are we going to find out where the buck stops in these operations and put someone in prison. The whole bunch of outfits should be closed, audited and the shareholders wiped out. Then we can have some Enron trials on the matter. This industry paid over $100 billion in bonuses last year from what I understand, nearly a 1% levy on the entire US economy.

  13. mrg

    I sure do hope these prosecutions come to pass. No one trusts the government any more (neither party- witness the rise of the tea party, which is a direct result of this distrust) because of this- it’s so clear that fraud was committed, and yet no one does anything.

    People aren’t completely stupid- they are pretty angry that they can’t find jobs while these rich jerks who effectively stole taxpayer money are still living high off the hog, and continue to do so with no repercussions.

    1. nonclassical

      The “Tea Party” finds its roots in 30′s manipulations during
      depression era..today it is a blatant attempt to CHANGE the ISSUE=SUBJECT away from NEOCONS+Bushit..

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