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Banks Have Hissy Fit, Cancel Meeting With Attorneys General Due to FHFA Mortgage Litigation

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Yours truly has said for months that the negotiations among major banks, state attorneys general, and Federal regulators to reach a settlement of various types of mortgage liability were not going to result in a meaningful deal. Further confirmation of our views came today, via Time’s Swampland (hat tip Lisa Epstein).

The five biggest banks cancelled a session today with the state attorneys general. This move was apparently to object to the FHFA lawsuits filed against 17 banks which Dave Dayen penciled out at $60 billion in potential liability.

This hissy fit seems wildly misguided, since the FHFA has not been a party to the foreclosure settlement talks. It isn’t even a part of the Executive Branch, so it’s a little hard to charge that the Obama Administration is acting in bad faith (which seems to be the subtext). Per Reuters:

“Each agency has its own statutory authority, and its own particular evidence,” said Peter Swire, a law professor at Ohio State University and former special assistant to the president for economic policy in the Obama administration.

“The FHFA is not part of the executive branch,” Swire added. “It does not report to the president. If the FHFA finds the right evidence, it decides on its own to move forward.”

The idea that a financial services regulator might operate autonomously is clearly not unknown to the major banks. Their captured minder, the OCC, went rogue early in the year to undermine the Consumer Financial Protection Bureau participation in the settlement talks.

But this temper tantrum provides yet more support for our thesis that there will be no deal. It has been evident that there is no ” bargaining” space” between the two sides, that is, a combination of damages and release of liability that both sides will find acceptable. In simpler terms, the two sides are too far apart. The key section of the Swampland piece:

The big mortgage servicers, including Bank of America, Citigroup, JP Morgan and others, were scheduled to meet late this week with the State AG negotiators as part of a separate investigation. Those talks are aimed at a settlement that will address standards for handling past and future mortgages, massive penalties (reportedly as high as $20 billion), and a release from legal liability for the servicers in other mortgage matters.

The State AGs did not foresee releasing the banks from liability for the kinds of violations alleged in the FHFA suit. The AGs are focused on the relationship between the banks and borrowers, while FHFA is focused on the bundled, or securitized, mortgages sold by the 17 firms. The big banks apparently were hoping they would be exempted from suits alleging they fraudulently sold bogus mortgages to investors, knowing they were less safe than advertised.

The State AGs, led by Iowa AG Tom Miller, have been desperately trying to finalize their settlement for months.

Let’s parse this.

Desperate is never a good position to be in during a negotiation, and Miller has only himself to blame for his fix.

The AGs and Federal regulators blew it by rushing forward to negotiate when they had no negotiating leverage. Iowa’s attorney general Tom Miller and the Federal banking regulators gave the store to the banks by failing to do investigations. The only reason someone agrees to a settlement is that he believes going to court will cost him more in the end. But the AGs didn’t even go though the motions of developing a case; insiders tell me no document requests were made. So the body language from the officialdom has been the purpose of these talks is to provide the authorities with some cover (see, we HAVE done something!) and to give the banks a lot of cover.

The evidence is that the AG/Federal regulator side seems to have become wedded to a $10 to $25 billion settlement (that’s a big enough to fool the public into believing the punishment was meaningful, look at the “massive” in the text above as confirmation). But they have the goods only on robosigning, and that isn’t worth remotely that much. So the only thing that the AGs have to offer the banks is a super broad release, which is tantamount to “get out of liability almost free” card. And as we’ve separately pointed out, quite a few members of the AG group are not comfortable with that idea, so even if Miller were to give the banks what they wanted, many of his presumed allies would bolt.

The Swampland piece gives a clear depiction of the gulf. I had long assumed the banks would want a release for securitization liability, such as chain of title issues (meaning failure to convey mortgages properly to securitization trusts). Even though the latest release proposed by Miller appears intended to provide some (perhaps a lot) of cover in that area, quite a few of his fellow AGs seemed unhappy with it. The Swampland piece indicates that they see the negotiations as being over much narrower issues. Oops!

As Miller and the Feds keep beating this settlement dead horse, their position looks more and more untenable; indeed, the cancellation today could be a statement by the banks that they see little point in continuing. Parties that have done their homework keep filing cases with large dollar amounts of possible damages attached to them, so the hope that the AG settlement might deter other litigants has been trumped by events. Expect Miller’s camp to try to craft a “peace with honor” face saving device.

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24 comments

  1. Fuck You Fannie Mae

    How can we, the people, tolerate an AG who was bribed? Fuck Tom Miller. How can we tolerate an agency that works for thieves? Dugan was criminally negligent – on his watch, the worst transpired, his replacement is another mob employee.
    The FHFA litigation is a civil political move, everyone of these Banking crooks needs to be “hunted down” criminally. Wretch, these analysis are pedestrian tripe that could be consumed with the morning paper, or a time when there was a vibrant middle class in this country and the seriousness of suffering didn’t really exist as widespread as it does now. Yves analysis continue the make believe that somehow there is a separation of authority, that of the state, the “Fed”, and then that of the Banks. Such nonsense serves no one well – for these are generally part of the same indifferent team.

    1. Fraud Guy

      They continue in office because:

      A) They receive large enough contributions from their corporate benefactors to swamp their opponents in advertising during elections.

      B) They claim to espouse other views that their constituents support.

      C) They make big splashy announcements about what they plan to do and only quietly, and without reporting, pull back from those plans, so no one remembers what they actually did.

  2. CIA Guide to Insolvent Banks

    Charlton Heston, in his most famously over acted grandiosity,
    exclaimed “You Maniacs! You blew it up! Ah, damn you! God damn you all to hell! ” God Damn you to hell Bank of America!

  3. LeeAnne

    If by the state you include the courts and judges, I couldn’t agree more.

    Securitization of residential real estate has been from its inception a scheme to destroy individual property rights, for central economic control and compromising our sovereignty until it is finished.

    That is the unifying principle behind the total lack, indeed hands off, of criminal investigations and prosecution of the FIRE 40% of the economy collecting leveraged 100X rents from the destruction of the country and its people, and scheming for more in the $trillions to further their parasitic intentions in a scheme for a NEW INFRASTRUCTURE BANK -more innovation. Their contribution will be to leverage up taxpayer money and skim that off the top at no risk to them.

    Infrastructure couldn’t happen without THEM controlling it.

    All politician attention to security is on reducing the security of law for us, the people, our possessions, and rights; and expanding military style security, equipment, surveillance and rhetoric against the people; not only Americans, but all the people of the world swept up int the bankers’ wet dream and our nightmare.

    Their next move, the ‘New Bank TBTF for Infrastructure’ I’ll call it, announced tonight, is set by Obama to begin with $10bn in seed money from taxpayers for a NEW BANK. As a public/private BANK it will be unable to fail no matter its size as it grows (scales up) in size.

    Only they, the BANKSTERS say, can conceivably do the central planning necessary for desperately needed infrastructure projects because as we know they’ve done such a good job as bankers and senators (Kerry, its big spokesperson has amassed a fortune of $400,000,000 while serving himself serving the people) and their construction, planning and engineering skills are legion.

    From Obama’s speech:

    Immediate surface transportation $50B

    Infrastructure bank $10B

    and ‘scaling’ land banks and other public-private collaborations as follows:

    “A New “Project Rebuild”, which will put people to work rehabilitating homes, businesses and communities, leveraging private capital and scaling land banks and other public-private collaborations …”

    “Immediate investments in infrastructure and a bipartisan National Infrastructure Bank”

    -a NEW BANK. -what a new concept!

    what the hell does bipartisan mean in the context of a private Bank? Will someone please ask him -please?

    And maybe someone will ask where the private profits from this public/private enterprise will be invested?

    Read more: http://www.businessinsider.com/factsheet-obamas-jobs-plan-2011-9#ixzz1XQkmNkgx

  4. Glenn Condell

    ‘The five biggest banks cancelled a session today with the state attorneys general’

    The banks cancelled? How can they cancel? I mean, if you have an appt with your parole officer you can be a no show and pay whatever price there is for that, but if the thing is called off it’s the parole officer who cancels, no?

    We all know the banks run the dog and pony show of US ‘democracy’, but my God have they really reached the point where they don’t feel the need for Kabuki when the highest legal officers of the State call them to account? So ‘go fuck yourself AGs’ is AOK then, nowadays? Jesus, nationalise the banks!

    Where is Obama on this? Halfway up his own fundament, as always? Trying out the lies in his latest set of instructions in front of the bedroom mirror – furrowed brow, check, faux-serious modulated timbre, check? What would FDR or Ike or even LBJ have said in response do you reckon? ‘You get your butts to that meeting or I will fill them with Presidential buckshot’ or words to that effect. Jesus, even Bush might have cleared his throat to say something other than ‘what do you want me to do now, sirs’?

    This after reading about Gubner Christie joining Scott Walker as a Koch-sucking hired gun – the evil rancher’s hired gun, that is, not the sort of hired gun that helps the peace-loving farmers against the evil ranchers.

    … what next, public auctions for politicians? It’s as if some undetected spacecraft combed the US sometime in the late 70s or early 80s and vacuumed all the decency out of virtually everyone who’s anyone, or would be for the next generation. This assumes there was decency there to begin with of course, which may be a stretch.

    I guess there is no need to go extra-terrestrial to find that vacuum. It sits silently above the nation, having extracted nearly everything of value from it while suborning and defanging the institutions and instruments of democracy that made America for a time, the ‘last best hope’.

    You’d like to think they’ll have to lie in the bed they’ve made, but hey capital is rootless now we have globalisation – cosmopolitan, untethered, mobile, groovy even. Maybe many of them will decamp to greener pastures when the shit hits, greener for a while anyway. Sensible polities might want to consider drafting rules about any influx of foreign billionares, whose ill-gotten gains would form the political seed capital for US style pillage of the masses.

    Maybe I’ll write to my local member, the Prime Minister and the letters editor of my local rag, like I did when Israel was pounding Gaza. And probably I’ll get the same response – absolutely nothing.

  5. Paul Tioxon

    These capitalist hate it when there is an independent agency beyond Congressional oversight, actually following the laws and policies of its organization. There is a reason why the republicans hated the Consumer Finance Protection Bureau. It is also independent. It has its own budget fixed as a percent of the Fed, one director, not a committee. There is a very deliberate and well measured type of organizational dynamic arising out of bureaucratic government types that drives the snappy, peppy business crowd nuts, when people don’t jump so high for meaningless fabricated deadlines, like quarterly results. But this lawsuit blind sided the banks. Hmmm, coincidence?

    While we have not seen the jailing of high profile CEOs we all love to hate, there is a steady stream of what is derisively called small potatoes, or meaningless nobodies being forced to return ill gotten gains, and even going to jail. Except for the people who got swindled, the counties and cities that got took for crappy swaps, and drop programs, EXCEPT FOR the mortgage brokers who defrauded, and can no longer get a license anywhere in the 50 states for financial services, except for the hundreds of actual restraints and prosecutions that go on everyday, for hundreds of thousands and hundreds of millions of $$$, and now billions of dollars, except for all of that low level justice being handed by the SEC and States and Federal Agencies, when absolutely nothing was going on before 2008, except for all of that, the big fish that get on our collective last nerve seem to be getting away.

    Maybe there is a culture of justice and criminal prosecution re-animating itself from a long hibernation. Maybe small measures of justice let people know what they have always known, that most wealthy and powerful never go to jail, unless done in by the rest of the wealthy and powerful ganging up on one of their own. And, that a lot of other criminal acts are no longer going to be allowed in a crazy un-regulated broker mortgage origination ocean of fraud.

    If there is ever going to be anything like what we saw before, there will be a lot of people with licenses and the owners of mortgage banks or other regular banks that let it happen under their watch will be held directly responsible.

    It such a big, unwieldy bureaucracy, with so many regulations that number in the gazillion, creating so much awful uncertainty, you never know what might jump out of the Federal Leviathan and devour you. Or if not devour, at least get $60 billion worth of small potatoes. And counting.

    1. Dill for Dems

      There you go again, what about Mark Warner, Max Baucus?
      The D’s n R’s defeated cramdown, congress is a cesspool.
      Nixon Dismissed!

  6. Walter Wit Man

    I agree that Tom Miller needs to be investigated or immediately removed from office. How did they not conduct any discovery? How? Why? This is like finding out your lawyer has been billing you but hasn’t done any of the work on your case!

    It’s criminal. We need a special prosecutor to investigate the investigators. The whole thing is rotten and Tom Miller and the entire gang have totally abdicated their responsibilities if they indeed conducted zero discovery.

    This fact needs to be verified. Do we even have a single mainstream news source that is worth anything that they can’t even verify if attorney generals are actually pursuing litigation they claim to be pursuing? This country is falling apart.

  7. Externality

    From Courthouse News Service:

    Homeowners Say California A.G. Is ‘Doing Bank of America’s Bidding’

    LOS ANGELES (CN) – More than 300 homebuyers accuse California Attorney General Kamala Harris of “doing Bank of America’s bidding” by seizing legal files from their attorney, Mitchell Stein, denying them the right to the legal counsel of their choice. They say Harris “acted as the pawn of America’s most powerful banks, rather than in the interest of California homeowners,” to silence their attorney in lawsuits against mortgage lenders.
    Similar complaints have been filed in Miami and New York. The allegations in this article come from the 54-page complaint in Los Angeles Federal Court.

    http://www.courthousenews.com/2011/09/08/39617.htm

  8. Sleeper

    Here’s another point of view -

    Although the banks are criminal they are not totally stupid.

    It’s totally clear that the banks are willing and able to buy state attorney generals. We can see this in the simple failure to go after the banks and their mortgage serices for the recording fees due to the local clerks of court / register of deeds. Few if any state AGs have pursued this even though local governments are struggling to meet their budgets.

    So what will the banks do ?

    1) Delay – each bit of delay means less risk of prosecution.
    2) Pretend to negotiate – as above
    3) Buy officials – As the settlement is delayed the local and federal officials will be much more likely to accept donations (bribes). And expect the officials to string this opportunity out to raise more funds.
    4) Introduce legislation at the federal level to solve the bank’s problems. This could be a separate bill but most likely will be a line item hidden in an unrelated bill. And it will be obsurely worded.

    So in the end the republic is given over to criminals and their bought and paid for officials.

  9. ella

    The banks have learned the Republican hostage message well, if you hold this administration and the nation hostage then you will win major concessions. Nothing more or less. Too bad the administration, the Democrats, independents and the rest of us have not figured it out.

    Appeasement does not work.

  10. Isabel S - Florida

    Sleeper, you are right. That is definitely a tactic used by these criminal Banks. Delay, delay, delay. They delay loan modifications in order to get their way and take people’s homes because they know that the homeowner will just ‘give up’ most of the time. They delay when responding to civil lawsuit brought on by homeowners. The Bankster attorneys will file Motions to Dismiss repeatedly in order to ‘delay’ the litigation process which will ultimately be to their benefit.

    My husband and I are currently in litigation with the worst bank of them all, Bank of America. The unnecessary abuse that Bank of America has caused me and my family caused long-term damage. I might be impaired but I am still fighting back. Please read our press release regarding our lawsuit: http://www.free-press-release.com/news-florida-couple-file-lawsuit-against-bank-of-america-for-mortgage-servicing-fraud-loan-modification-and-rico-without-an-attorney-1299633088.html

    I am suing them for racketeering among other things and I would love someone to prove me wrong. Bank of America is a Racketeering Enterprise! Please read my article here: http://www.piggybankblog.com/2010/11/16/bofa-racketeering/

    These greedy Banksters only care about themselves. They are only worried about not being able to fly their private jets and not being able to pay their billion dollar mansions. They make me sick!! They could care less if you are dying, got an operation, lost your job or any other unexpected inconvenience that might happen in your life. They need to be exterminated like a bad cockroach infestation that has corrupted this country’s economy.

  11. Admiral

    Yves, when we say they have the goods only on robosigning, and that the settlement rushes to settle before investigations have taken place… do we know if at least SOME state AG investigations are ongoing now? Clearly they have access to people who know both (a) where the bodies are buried and (b) more people who know where more bodies are buried. Beneath the surface there is a vast reservoir of knowable information, but are AGs are in the process of tapping into that reservoir?

  12. Fannies Gangsters

    “Fannie and Freddie not only sold mortgage-backed securities to the world, they also purchased a good portion of the mortgage-backed securities they processed.

    Secondly, it is important to acknowledge the fact that Fannie and Freddie had much more information relating to the loans associated with their mortgage-backed securities than what they provided to the outside world.”

      1. Mack the Freddie

        via Mandleman:

        “I say it is time for the FHFA to wake up and quit looking for excuses to exonerate the criminals. Doesn’t the FHFA know that Fannie Mae and Freddie Mac had their own money making machines? And don’t they know that the GSEs knew how to use and abuse those machines to the detriment of the world’s economy? The beloved GSEs of the FHFA were not ignorant and new to the mortgage-backed securities game. Far from it—Fannie Mae and Freddie Mac were the ones in fact who designed and developed the game.” – Jim Boswell

        This is madness, this is MERS. FOIA requests:

        Acting Director
        Edward DeMarco
        Director@FHFA.gov
        202.414.6923

  13. Elizabeth

    I still don’t get it. Miller wasn’t “desperate,” the banks were — desperate to avoid a much more expensive round of litigations. That was the whole point of opposing this deal, that it fed the banks exactly what they needed: a broad release from that liability.

    But I guess you’re saying several AGs were already getting cold feet.

    Sounds like the AGs, not the banks, walked away from this deal, with New York’s Schneiderman just the most outspoken defector. They left the formality of it to the banks.

  14. beowulf

    “The FHFA is not part of the executive branch,” Swire added. “It does not report to the president. If the FHFA finds the right evidence, it decides on its own to move forward.”

    Score one for Team Scalia. This trainwreck is exactly why the Framers of the Constitution were clearly in his Unitary Executive camp. Of course the FHFA is in the Executive Branch! Ut exercises federal executive power and its director is a voting member of the Financial Stability Oversight Council). The FHFA–and the Fed for that matter– should answer to the president. To quote a Judge Kavanaugh’s recent concurring opinion in the Yucca Mountain case (the whole opinion is excellent):
    “The first 15 words of Article II state quite plainly that “[t]he executive Power shall be vested in a President of the United States of America” — not some of the executive power, but all of it. And Article II later says that the President alone has the authority and responsibility to “take Care that the Laws be faithfully executed.” As Professor Amar has summarized, “What Article II did make emphatically clear from start to finish was that the president would be personally responsible for his branch.”
    http://www.leagle.com/xmlResult.aspx?page=5&xmldoc=In%20FCO%2020110701130.xml&docbase=CSLWAR3-2007-CURR&SizeDisp=7

  15. beowulf

    Sorry for the typos, was typing while on the phone. The funny part is, as Kavanaugh’s opinion methodically explains, if the President asserted his Article II powers to put FHFA on a leash, the Supreme Court would almost certainly back his play. But the banks really really don’t want that (God forbid the people elects someone they don’t own). It would give the President and all of his successors, the actual authority over the financial system that voters already think he has (the banks know better).

    A Court ruling overturning the 1935 Humphrey’s Executor (Kavanaugh points out its the last anti-New Deal ruling still on the books) would unavoidably put ALL independent agencies under the President’s direct control (sorry Bernanke). In terms of financial regulation, it’d give the Secretary of the Treasury supervision and control over the new FOSC and all of its member agencies:
    Secretary of the Treasury (chairs the Council)
    Chairman of the Federal Reserve
    Comptroller of the Currency
    Director of the Bureau of Consumer Financial Protection
    Chairperson of the U.S. Securities and Exchange Commission
    Chairperson of the Federal Deposit Insurance Corporation
    Chairperson of the Commodity Futures Trading Commission
    Director of the Federal Housing Finance Agency
    the Chairman of the National Credit Union Administration Board

    That the White chooses to eat FHFA’s dust instead of eating the FHFA is just Obama exercising his conflict-avoidance powers (which is only in his head, not the Constitution).

  16. Teri Buhl

    Robo signing is not the only strong evidence the AG has against one of the banks. The RMBS fraud / missrep cases against JPM/Bear/EMC has very strong documented evidence, along with over a dozen of whistleblowers coming forward, to back up the crimes of Tom Marano’s mortage team at Bear Stearns. There is also clear civil and criminal violations by EMC and now JP Morgan in their role of trying to cover up Bear’s RMBS litigation liabilites. The only question is will the NY AG get too much politcal presure and backdown from his current investigation. His goal is to use the Martin Act against some of the Bear executives named in the FHFA and Ambac/Syncora suits. This is something I’ve been reporting on all year at The Atlantic and The Distressed Debt Report.
    http://www.teribuhl.com/2011/08/24/report-says-bear-stearns-executives-sold-illegal-rmbs-and-covered-it-up/

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