The Administration’s po-faced insincerity on the mortgage crisis front is wearing thin now that other authorities are taking action against the worst abuses.
Yesterday, we had the sorry spectacle of Treasury Secretary Timothy Geithner, under questioning by Congressional Oversight Panel commissioner Damon Silvers, maintain that the Treasury really had very little power to require banks to engage in certain types of behavior under the Treasury mortgage modification program, HAMP (see the testimony starting at 101). Silvers made it quite clear that he did not buy Geithner’s claim. If you think I am reading more into Geithner’s response than is warranted, he had a longer form discussion with a small group of bloggers last August and made a similar argument when asked why Treasury had done nothing when servicers were clearly gaming HAMP. I pointed out that there was a big difference between narrow authority and broad authority, and pointed out that Treasury had lots of leverage over banks, starting with REMIC violations. He pointedly ignored the REMIC issue.
So we now have the spectacle of two state attorney generals who see mortgage modification abuses large and persistent enough to warrant filing lawsuits against Bank of America. And both their press releases and media reports on the lawsuits (sadly, the filings themselves do not yet appear to be online) make clear that some of the alleged violations took place in connection with HAMP.
So why is Treasury playing what amounts to “see almost no evil, hear almost no evil, see almost no evil” as far as HAMP in particular and banks in general are concerned?
Geithner does acknowledge problems, then either plays them down or says that they are the result of other factors. For instance, the latest argument from the officialdom is that the high level of foreclosures is to a significant degree due to high unemployment. While that is narrowly accurate, it’s also terribly convenient. It alleviates regulators like the Treasury of the obligation of looking how much servicer abuses such as erroneous application of payments and pyramiding junk fees are contributing to foreclosures. Similarly, high foreclosure rates also contribute to high unemployment. Foreclosures, particularly ones that could be avoided by doing a principal mod with a viable borrower, depress housing prices. Low and potentially falling housing prices impede housing sales generally, making it hard for homeowners to move if they get a job in another city. And a weak housing market has a general economy-depressing effect, which affects the job market. In other words, the causal link between unemployment and foreclosures is not one way.
So with Treasury having more than a bit of egg on its face with HAMP, with getting tough on banks a popular move, with the Administration in desperate need of courses of action to help boost the economy that don’t require budgetary approval from the tight-fisted incoming Republicans in Congress, you’d think reining in the worst servicer abuses would be a no-brainer. Pick on the worst outliers, hope the rest of the industry gets the message, and if not, engage in another round of public executions. But that strategy would require a bit of backbone, a quality sorely lacking in the Obama Administration.
The lawsuits against Bank of America and its affiliates make a mockery of Treasury’s passivity. They are broadly similar, both the result of investigations spurred by borrower complaints. The Arizona litigation, filed by Terry Goddard, charges Bank of America with consumer fraud as well as violation of a consent decree entered into in March 2009. The Nevada suit focuses on alleged deceptive practices in mortgage servicing, particularly in mortgage mods and foreclosures.
The statement of the Arizona AG Goddard says that the lawsuit seeks “restitution to eligible consumers and civil penalties, attorneys’ fees, and costs of investigation to the State” as well as fines of as much as $25,000 for each violation of the 2009 consent decree and up to $10,000 per violation of the Arizona Consumer Fraud Act.
Both suits include a litany of complaints heard throughout the HAMP process: homeowners told they had to default when in fact current borrowers were eligible; borrowers under consideration for mods advised that their house would not be foreclosed upon when BofA was moving forward with the foreclosure process; falsely promising to take action on mod applications within a specific time period; telling consumers that their mods would be made permanent if they successfully completed the trial period, then denying the permanent mod and giving deceptive reasons for the turndown; incorrectly informing credit bureaus that borrowers had defaulted; engaging in bait and switch on mod terms.
The language in the press release was scathing: “misleading and deceiving consumers…callous disregard…truly egregious”.
The New York Times story on the suits points out that the Arizona attorney general Goddard’s term ends in January. The parallel filings, in two neighboring states that have among the highest foreclosure rates in the nation, will hopefully make it hard for his successor to back down (how can an incoming AG retreat from a case if the one in Nevada moves forward and garners favorable press? While AGs can and do kowtow to bankers, it will be harder to do so with the lights turned up this high).
These lawsuits also serve to keep pressure on Iowa attorney general Tom Miller, who is leading the 50 state AG probe. Although Bank of America may turn out to be the worst actor, newspaper reports on HAMP abuses have reported of similar dubious conduct by other major servicers, suggesting that additional banks should also be targeted once the litigation strategy is perfected on Bank of America.
Despite Miller’s assurance that his group will seek criminal indictments where warranted, it isn’t clear that MIller will be aggressive. I was concerned when I heard him speak positively about his dealing with Michael Barr of Treasury in the first Senate Banking Committee hearings on foreclosure abuses (as in it seemed sincere rather than pro forma). Those concerns have been further stoked by reports that Miller has said privately that he does not think the fraud is serious and he anticipates everything will be worked out.
Action on the state level is the best hope to rein in banking industry abuses. Hopefully observers will recognize that the actions of the Nevada and Arizona state attorneys general make a mockery of the Treasury’s failure to seek redress and will also set a benchmark for possible measures against other banks.
Update: Here is the link to the Arizona complaint, hat tip Lisa Epstein. I’ve only skimmed it, but it has multiple references to commitments Bank of America made under the HAMP program, again raising the question of Treasury’s failure to take action.
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My take on these state investigations and lawsuits is that they’re not likely to directly accomplish much.
(I admit that by now I find it inconceivable that anyone anywhere in the system actually cares about the law or the good of the people. So I’m left wondering, what’s the angle? How’s he trying to get over with this? Strike a pose, turn it into higher electoral success, and sell out at that more lucrative level, I guess. Am I too cynical by now?)
But for citizen presentations, they can be exampled as confirmation, for those who need such conformation, that there are system cadres who acknowledge that this involves many de jure crimes. That supplements the explanation of the de facto crimes legalized by the rigged law. We can extrapolate from there: The whole thing, including the federal government’s role, is organized crime.
Sadly, I also see it as extending the game. Why are these two states “suing’ BAC? Do the states hope for a payout to bolster finances? Perhaps someone can explain why they did not file charges instead. That would have allowed them to seize the banks’ assets. Filing lawsuits at this time guarantees a long legal fight on a case by case basis, meanwhile the executives of the bankrupt Bank of America can finish looting the assets and quietly decamp.
On a side note I see BAC has created an enormous trapdoor for not processing payments. They have stated that they will not process any payment “which they have reason to believe might be destined for Wikileaks…” The bank could possible apply that to anything??
Geither won’t focus on servicer abuses because it would put spotlight on those who profited from servicing fraud.
Servicing Fraud -> Fabricated Defaults = Credit Events -> CDS Profits = Ka-Ching!
They are or will be construed as AGs’ trying to make a name for themselves for political or other reasons.
The sheer legions of folks that should be in jail will make it so that few if any will do time…sign of a declining society, rule of law becomes blatantly disregarded in some sectors of society while strictly enforced in others.
I can’t say its much fun watching society devolve in real time…kinda like evolution, only backwards. It is too bad so many folk other than the ultra rich that deserve it will be hurt by the coming banana republic with nukes dark ages.
One has to wonder how corrupt other States in our great Nation are – there are other states, particularly on the East Coast where the entire justice system seems to exist to go after the little fish, even in instances where the little fish dare raise objections to the status quo. The entire organizational chain is compromised, with states urging residents to be on the “look out for suspicious activity” while their residents are unemployed, losing their homes, or locked up. Not to sound apocalyptic, but to rely on the press, or a Treasury Department that allowed and encouraged the entire housing bubble is delusional stuff. Remember, the Treasury Department *has* the ability to assasinate with out due process. There won’t be a need for this in the states, since the unemployed will lose their homes and be driven so far into the ground they’ll be preoccupied with trying to take care of themselves. The Revolution won’t be blogged and it will take years of attrition.
Nothing will be done until the inevitable revolution. Governments, including the US usually seem to work for monied interests. Check out this wikileaks cable, labeled SECRET, on General Electric, who, working with someone sounding like a Dr. Mengele’s protégé, used our POTUS to sell its wares in Latin America. The US ambassador did a good job and tried to stop a bad smelling deal. In other case, GE used the president of Spain to directly intercede and kill a deal that had already been made with Rolls Royce in the UK. If our governments are reduced to shoe salesmen for specific, government bailed out large corporations, society cannot be egalitarian, and Houston, we have a problem.
I forgot to add the link to the wikileaks cable
http://www.wikileaks.nl/cable/2007/03/07MONTEVIDEO287.html
I can’t help thinking how pleased Goldman Sacks must be that media spotlight is turning from them, The Vampire Squid, to Bank of America. The Vampire Octopus? No ink being used!
It seems to me that many of the problems would have been 100% avoided if HAMP had not been created. By all means prosecute servicer illegalities, but what, exactly, was the problem of letting the specific parties to the mortgage contracts – adults one and all – work out whatever served their interests? I’ll say it again: couple real accounting standards on asset valuation and a credible message from the federal government that no money is ever going to go to reorganizing mortgages and you’d see a great deal more serious interest in doing deals that acknowledge the sad reality of many loans and many properties.
Does anyone know how much will BofA end up paying if the Arizona complaint is successful?
$25,000/$10,000 per violation: how many violations are there? Is there a list? Who determines if a violation has taken place?
good starting point for your research would be the evidence filed in support of the consent decree against Countrywide entered by AZ court in 2009, which is the basis of the new action by AZ AG. Complaint PDF linked to by Yves above recites that the consent decree was attached to the new complaint as Exhibit “A” but it is not included in the PDF. Search the AZ AG’s website named at the link to the complaint:
http://www.azag.gov/
Para. 17 of AZ AG complaint alleges 13,000 homeowners IN ARIZONA alone are covered by the 2009 consent decree. Unclear if AZ AG seeks $25K for every one of those 13K homeowners, or whether the $10K consumer fraud penalties would be awarded for every such homeowner. Other parts of the complaint recite that BAC itself estimated its nationwide obligations under the consent decree would cost over $8 Billion dollars in services and/or loan restructurings for homeowners in the several states covered by the consent decree.
Thank you Fractal!
Treasury isn’t sitting on its hands. It takes a lot of gel and fingerwork to keep Timmy’s hair looking like he wore it in high school.
Republicans blocked Marcy Kaptur’s bill on funding Legal Aid for HAMP victims. Now blame for that mess falls off the Geithner Grinch.
I’m told on very good authority that this was a fix, that the nixing of the bill had been orchestrated from the Democrat side. Note how Bachus switched at the very last minute.
The democrass killed the Kaptur’s bill?
Are they totally insane? How many dozen of eggs in the face would they get if a “source” (wiki)leaked that to the press?
Does this “very good authority” you alluded to knew the motives of this behavior?
Consider your assumption of Republican perfidy in this instance when you ask the question of Dem motives.
It’s striking a pose. On it’s face, it looks like what you assumed: Dems trying to stick up for the common people, Reps killing the bill to protect banks. It’s just a useful narrative for the D party, but it’s not an actual representation of both parties’ leadership’s agenda: protect the banks at all costs.
Or, less conspiratorially, it simply reflects a real split in the Dem party: the bill was promoted in good faith by rank-and-file Dem Congressvarmints but the Party’s leadership quietly killed it in the banksters’ interest. Safe for them, since they know that the GOP will gladly take responsibility for it, framing it as themselves standing up to the dirty f-ing hippies.
Case is in Arizona Superior Court, Maricopa County: State of AZ v Countrywide et al 2010-033580, but I could not access file due to traffic volume on site!
Your ‘update’ is the way to get to this. Sorry.
Case # has prefix CV, so CV2010-033580.
The Control Fraud continues until the peoples protest in numbers sufficient to gain attention. The art of this white collar crime is the creation of a shell game sufficiently complex to confuse the masses.
Yves,
Re: Getting tough on banks
The banksters have shown big profits and have given themselves big bonuses. In Econned you argue that much of that was the result of deceptive accounting, i.e. SPEs, pricing fantasies, and (my favorite) de facto upfront recognition of profits. Did their efforts also produce authentic profits? For example, acquaintances claim to have made a handsome profit in 2005 from their investment in MBS. I didn’t know that retail investors could get in on MBS, let alone get a dreamy return.
Opening the Bag of Mortgage Tricks
After the company collapsed, a small firm called Compass Partners bought the servicing rights to these assets for $8 million. A short time later, Silar Advisors, a company overseen by Robert Leeds, a former Goldman Sachs executive, got involved by financing Compass. Compass/Silar began servicing the loans for the investors.
Almost immediately, the plaintiffs in the suit contended, Compass/Silar started siphoning off money owed to investors holding the loans. Among the servicer’s tactics, the plaintiffs said, were improperly charging default interest, late fees and loan origination fees that reduced amounts due to investors.
At the same time, court papers show, Compass/Silar quietly took in almost $860,000 in late fees, default interest and other costs from the Standard Property borrower. This ran afoul of the servicing agreement governing the Standard Property mortgage. The agreement stated that such fees could go to the servicer only after investors had been paid principal and accrued interest on a loan.
“No one really knows what is in the black box known as loan servicing, and most investors don’t even think of their servicer taking advantage of them,” Mr. Bickel said in an interview. “There’s not a lot of transparency, and I think this case is going to bring to the forefront the potential for abuse.”
http://www.nytimes.com/2010/12/19/business/19gret.html?ref=business
Yves, thank you very much for the PDF of the Arizona complaint. Scribd versions of such filings are virtually useless to practitioners. Thanks also due to AZ AG’s Office. We should get the word out to filers that PDFs of their complaints should go up on their websites or out in their email broadcasts at the same time they issue their press releases.
On a related note, since Naked Capitalism occasionally receives pleas for help from beleaguered homeowners, NYT has a helpful guide to finding & hiring a lawyer to assist in obtaining a loan mod:
http://www.nytimes.com/2010/12/19/realestate/19mort.html?_r=1&ref=business&pagewanted=print
Where is the IRS on the REMIC issue? They are ignoring what could be a huge windfall tax payment. The tax is 100% of net profit.
“(a) 100 percent tax on prohibited transactions
(1) Tax imposed
There is hereby imposed for each taxable year of a REMIC a tax equal to 100 percent of the net income derived from prohibited transactions.”
Despite what the American Securization Foundation says, it’s not the corporate rate. It’s 100%.
I heard rumours that Mr. Geithner was on the way out. Perhaps the next Secretary will be more inclined to protect the public against outrageous fraud.
Mirando “am” en la cama, desayunando. Básicamente, me rasco a 2 manos. Pero ojo! después me voy a jugar al golf (un deporte extremo eh).