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Yet Another Reason to Hate the Mortgage Settlement: The Release is Botched

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Do you remember the brouhaha before the mortgage settlement was announced about the release? Recall, sports fans, as we stressed often, that this was a cash for release deal. The only motivating factor for the banks was the scope of the release. The Administration and attorneys general kept claiming the release was narrow, even as both the messaging (unintentionally) and snippets of disclosure suggested otherwise.

Remember that the Administration also trumpeted that enforcement would be tough, even as Abigail Field has shown that idea to be a joke. For instance, the servicing standards allow for the astonishing concept of an acceptable error rate. Banks aren’t permitted to make errors with your checking account and ding you an accidental $10,000 and get away with it. But with people’s most important asset, their homes, servicers are allowed a certain level of reportable errors, and many of them can be serious as far as borrowers are concerned. This is one example from her post:

Let’s return to page E-1-6, and look at the second metric, which applies to everyone with a mortgage: “Adherence to customer payment processing.” According to Column C, it’s not reportable error for the B.O.Bs to tell their computers that you paid less than you did, if “Amounts [are] understated by the greater $50.00 or 3% of the scheduled payment.”

Since most people don’t pay more than what they owe each month, posting less than you paid would seem to make you delinquent when you’re not. How can that be ok? What are the consequences? The servicing standards say the banks have to take your payment if you’re within $50, (See page A-5 at 3.a) but if your mortgage payment is $2000/month, 3% is $60. What if you start facing fees? What if you were trying to bring your account current and the bank screws up the data entry and starts foreclosing? Why isn’t that potentially devastating error reportable?

And again, it gets worse because of Column D. Again, reportable error has to happen 5% of the time to matter. There’s more than 50 million mortgages in the country. 5% of 50 million is 2.5 million. In a single year the banks can tell their computers that 2.5 million people paid so much less than they in fact paid that it’s reportable error, and still the bankers won’t get in trouble.

Most plainly, the bankers can tell 2.5 million people:

“Hey, you didn’t make your payment this month, your check’s short and we’re putting it in the no man’s land of a “suspense account” triggering delinquency and fees, even though you really did pay in full and have the canceled check to prove it. And guess what? No one but you cares; law enforcement won’t even consider dinging us for it.

I’m struggling with the same level of disbelief I had when I first learned that banks were systematically committing forgery.

She also points out that wrongful foreclosures at a 1% rate are acceptable. Procedures around real estate are deliberate because any error of this magnitude has devastating consequences. But this new provision means that 1%, or over 33,000 erroneous foreclosures since 2008 would be perfectly OK as far as the authorities are concerned.

Field also points out in a separate post that this deal is in no way done. Key points remain to be resolved, in particular, how the Monitor will supervise the pact. That’s a huge item, and leaving it unresolved shifts the power to the banks (if you don’t believe me, I refer you to what is happening to Dodd Frank).

But while these are important, notice the media silence about the release? Go have a look and you’ll see why. In the Bank of America example, as with the rest, it’s Exhibit F. It’s really long and not at all pleasant to try to parse. But you actually don’t have to in too much detail to discern what is wrong with it.

Now as verbose as it is, the form is, basically, “We fully and finally release everything except the stuff in Paragraph (11).” That starts on page F-29.

This formula, “we release everything except certain particulars” is not such a hot structure to begin with when you haven’t done investigations, as in there may be conduct you didn’t discover that surfaces later and it isn’t in your Paragraph (11) list that you are still free to pursue. But even worse, the Paragraph (11) list is poorly drafted. Many of its subsections invoke “Covered Servicing Conduct,” “Covered Origination Conduct,” and “Covered Bankruptcy Conduct” in describing what is not released. The problem is that while those terms are DISCUSSED at length at the top of the Exhibit, they are not clearly defined. They are included in the recitation of why there is a settlement to begin with, that the United States “contends that it has certain civil claims based on the COMPANY’s servicing…(the “Covered XXX Conduct).” And while each type of covered conduct is followed by a list of “deficiencies,” they are also open ended, to wit:

(1) Deficiencies in servicing residential mortgage loans for borrowers in bankruptcy relating to:

(a) The preparation, prosecution, documentation, substantiation, or filing of proofs of claim, motions seeking relief from the automatic stay, objections to plan
confirmation, motions to dismiss bankruptcy cases, and affidavits, declarations, and other mortgage-related documents in bankruptcy courts

This comes close to Schrodinger’s cat having been given a new half life in the most important legal deal in US history. The “covered conduct” is “certain claims,” or per Black’s Law Dictionary, “a demand of some matter as of right made by one person upon another, to do or to forbear to do some act or thing as a matter of duty.” But the claims aren’t nailed down. And that makes them open to challenge. And this isn’t my reading. I asked a law professor who has written journal articles on matters related to the settlement, and he criticized the release, in particular, the definitions. He said that if a regulator or prosecutor tried going after any of the misdeeds in Paragraph (11) whose description included one of the types of Covered Conduct, he’d give the bank 50/50 odds of winning the argument that the activity in question was not part of the Covered Conduct. Yet another “get out of jail free” card, with the only open question whether this was Administration design or incompetence.

As hedge fund manager David Einhorn apparently says of companies he sells short, “No matter how bad you think it is, it’s always worse.” And here, the single most important thing in the settlement deal to get right, the release, has, as we and others predicted, proven to be a travesty.

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30 comments

  1. LucyLulu

    Yes, its a broad release. Hell, it releases lenders if they never owned the loan and fabricated any necessary documents. How much more fundamental can you get than releasing walking off with someone else’s home? Do releases matter if there was never any intention to pursue penalties?

    Criminal penalties remain an option. Every single state AG could pursue forgery on the notarized documents and perjury on affidavits. Tens of thousands of counts at minimum. How many of our illustrious state AG’s will bother? So far we have Nevada and one county in NC. Will there be anybody else? Don’t hold your breath.

    Individuals can still make claims. Yep, that has lenders worried……. about paying damages to all 20 of the people who can afford to take them on and manage to beat them. Forgive me if I’ve become cynical about a solution from within the system.

    We have the power. If lenders refuse to honor their contracts, we can too. We are paying them, not the other way around. We can refuse to pay our mortgages and bring them to their knees. If even 25% of homeowners would agree, I’d happily participate. Then we could negotiate a REAL settlement agreement.

  2. Brooklin Bridge

    It goes without saying that Schneiderman is going to walk away from this stench, dignity intact, any day now…

  3. LeeAnne

    Secluritization is the elephant in the room. It is to be maintained aat all costs. The PTB have determined to maintain that system at all costs, including the destruction of the legal system representing individuals. There’s a pattern here. The system being put in place is one that deprives home owners of legal representation in the courts, destroying individual sovereignty with their property rights while expanding the decimation of state sovereignty.

    The governors of these 50 states, including and especially the duplicitous New York’s AG Schneiderman (can’t wait to see how he’s rewarded by the head of our Banana Republic for his betrayal) betrayed their constituents, unless of course, they can be sure that the population caught up in this mortgage mess (I know of at least 1 hard working nurse who is) just do not matter. They don’t count in an election.

    Is there another explanation?

  4. LeeAnne

    The ‘tell’ is continuation of MERS signing. The system needs robosigning. Without it the ‘securitization’ (bundling of thousands upon thousands of properties in one big profit-maker for Central Bank members to concentrate political and financial power over their populations), illegal and soon to be made totally legal, is required for to the ‘securitization’ system to exist. Volume is the name of the game.

    Property rights must be destroyed if populations (see Greece and Italy) are to be controled by fascist extreme fanatical right wing regimes (bankers and multi national corporations).

  5. Michael Fiorillo

    The working class was effectively stripped of its assets and security in the wave of deindustrialization over the past thirty five years. OK, well, it’s axiomatic that unions are to be broken, labor “disciplined ” and shop-floor (factory, office or elsewhere) workers are to be immiserated.

    And it’s not surprising that the middle class is made to fund the further enrichment of the 1% through various debt bondage vehicles (mortgage, credit card, student loan debt, etc.).

    But to see that we’ve actually reached the point where members of the Overclass are so avidly devouring each other (MF Global, Abacus, Eminent Domain as a lever for private real estate development, etc.) and are willing to destroy the very system by which property is registered, well, what more evidence do you need that the snake is eating its own tail?

    1. Saudi Royal

      My Lai/Afghanistan, the one bad apple thing. That’s the press chant this morning.

      “1%, or over 33,000 erroneous foreclosures since 2008 would be perfectly OK as far as the authorities are concerned. ”

      Every agency is nearly captive. From atrazine in food to financial predation, he who hath the cash ruleth. Oh yeah we have a new agency, that’ll stop crooks from throwing families on the street. Not.

      1. Archie Funker

        You make a compelling point. If Bankster can commit felony for 2K, and [much more importantly engage in terrorism, by destroying peoples lives and having very few, in the press, in the Gov'mint, in the medical community or anywhere else even consider or measure this violence] you have a society that is decidedly indifferent. You made me think of Chomksy, If the idiots are just yelling “pay your bills” now. What comes next?

        “we as citizens of democratic societies are directly involved in and are responsible for, and what the media are doing is ensuring that we do not act on our responsibilities, and that the interests of power are served, not the needs of the suffering people, and not even the needs of the American people who would be horrified if they realized the blood that’s dripping from their hands because of the way they are allowing themselves to be deluded and manipulated by the system. “

  6. Jill

    Every incentive has been given to the banks to foreclose on people. That is clear from this and the prior analysis on the videos here from 3/17.

    This isn’t just a financial godsend for banks. It’s a message from the govt. to people who might fight back–we can and will come after you. It’s right in line with the stripping out of the right to protest, now a felony if the secret service is anywhere nearby.

    The govt. has many tools in its toolbox to take down those who work for justice. They will use them, all of them. Looking at Russia, I see us.

    1. ECON

      “Looking at Russia I see us”. Jill you are correct but I think that you are too forgiving. A Czech film maker once said that in the countries of Eastern Europe under Moscow leadership that people did not read or consume media for news because they knew it was pure lies and propaganda. Unfortunately I surmise less than 20% of US citizens have this understanding of the role of US media to put people “to sleep” and evade the uplifting of the consciousness of citizens as to the reality of the corruption by corporations, government and courts.

      1. Squealin' Realtor

        The Soviet Union did a better job of housing everyone, for this was nearly guranteed. US Elites will rarely discuss housing in any meaningful, less then insane way.
        Aside from problems in any hulking nation state, there are much better examples of better policy everywhere outside of the US, from health care to education. Let the idiots roll out more oppression, this will accelerate their illegitimacy.

      2. Jill

        ECON,

        I do notice the remarkable consistency of message in all our media. It is creepy. Maybe it will take side by side comparisons of the “right” and “left” wing sites to show this. John Stossle was saying how it’s not the bank’s fault if the govt. chooses to give them a bunch of money for their fraud. That’s quite a remarkable statement for someone who touts himself as a law and order conservative! And the left? I have nearly given up reaching the group I used to call myself a member of. Torture, murder, banking fraud–it’s all good now that a Democrat is doing it.

        Counterpunch just exposed the 99%spring movement as the Democratic front group it is. Many people are way too busy surviving to check into anything. But the people who can but won’t, I do hold them accountable.

  7. Susan the other

    The first, best step is to sue MERS. Every county attorney can sue MERS for 15 years of missing title registration fees. In the course of this action for (criminal illegal conveyance, tampering with a recorded instrument, fraud, forgery, uttering and unconscionable self enrichment by MERS members, etc.) MERS has no defense. All the counties brave enough to take this on (a few already have) could come together in a united effort, or shared effort to expose all of MERS’ lies. In taking this action another problem will automatically be resolved – that of clouded titles – because in the proving of faulty title registrations it will also be proved that no one has ever been properly assigned to the mortgage document and all MERS titles will have to be cleared eventually by court orders.

    1. Guy_Fawkes

      Susan, try to get the county prosecutors to acknowledge the crimes….that would be a miracle. I showed my county prosecutor the most egregious forgeries and his response? —> “It could have been the signer using a different pen.” OMFG….really? A different pen??? Then, let me take your checkbook and I will use a different pen each day to take all the funds out of your account.

    2. chunga

      THE MEN FROM MERS

      http://www.foreclosurehamlet.org/profiles/blogs/the-men-from-mers

      WARNING! THIS IS NOT A TEST. PLANET EARTH HAS BEEN INVADED. DO NOT RESIST.

      (It’s not really funny, it’s a story (played out in Federal Court) of bankster men and their lawyers doing a foreclosure sale despite a standing “Stay Order”. I think it will end well because the homeowner’s attorney is suing the $hit out of them for defying the Judge’s Order, among other things.)

  8. Guy_Fawkes

    Stealing homes is sanctioned by our government….I say we all start stealing homes….from the banks. Use the bank’s own bullshit against them.

  9. DeadlyClear

    Al Jazeera summed it up remarkably well:

    “As former Democratic congressional staffer Matt Stoller writes, from the moment he took office, Obama pursued programmes designed not to ameliorate the pain of the average US citizen, but simply “to space out foreclosures so that banks could absorb smaller shocks to their balances”. Like US support for dictators abroad, the justification is always the need to maintain “stability”, never mind the unjustness of the status quo.”

  10. L

    ‘triggering delinquency and fees, even though you really did pay in full and have the canceled check to prove it.’

    This is exactly what happened with Fairbanks Capital. In the ensuing class action lawsuit, we got back a few cents on the dollar.

  11. Jim A.

    Mistakes happen. But 1% is WAY to big an error rate for something critical and simple like mortgage servicing.

  12. Brooklin Bridge

    Yet another “get out of jail free” card, with the only open question whether this was Administration design or incompetence.

    Given that Obama signed “the anti-protest bill”, H.R. 347, which severely curtails the right to protest (as Jill mentions above) and given that he signed the bill authorizing the President to assassinate whoever he pleases whenever and wherever he pleases with no independent review of any kind, to imprison anyone anytime with no judicial review and given FISA and given that he signed away any strong public option in secret meetings with the insurance giants, given all that and so so much more, you still question whether this is incompetence or by design?. Or was that simply a rhetorical question?

  13. C

    Well, I give up. Not on changing things but on the mortgage and banking systems. I am not allowed to make errors but the banks can “make mistakes” and kick me out of my home. Why bother buying one?

    In a system where theft and fraud have been legalized (for some) why bother participating? Yes I might squek by but given a 30 year mortgage lifetime and a 1% error for year the cumulative probabilities will add up meaning that over the 30 year lifetime of my mortgage I only have a (.99)^30 = 73% chance of going without some bank-induced seizure.

  14. mannfm11

    Clearly the AG is either an idiot who couldn’t have possibly passed his law classes or been around criminals so long he can’t see criminal behavior or fraud any more.

    1. mannfm11

      And, if the banks made merely 1 mistake out of 1000 in registering entries in bank accounts, they would have a mess on their hands of epic proportions. They can usually tell who they gave an extra $5 to. Their employees are trained not to make mistakes. Either their quality control has gone to pot or they are engaged in something different than normal business practices. This was never a problem in the past, why now?

  15. matt weidner

    Meanwhile,in courtrooms all across America, thousands of elected local judges sign Orders throwing their neighbors into the street, knowing full well that the documents before them are fraudulent. On April 5th at 11:00 a.m., my client and his permanently disabled wife will be thrown into the street. Linda Greene assignment, Danielle Sterling endorsement, the Plaintiff admits they have no idea who owns the note….they say it doesn’t matter. Apprently none of that mattered….Judgment for Plaintiff, welcome to the warm and very unwelcomining streets of Florida.

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