Iowa AG Miller Commits to Prosecution of Bank Execs, Seeking Principal Mods

We asked readers to sign a letter to Iowa attorney general Tom Miller, who is leading the 50 state probe into foreclosure and mortgage abuses. Here is the official report from National People’s Action, which was part of the group that met with Miller earlier today:

Leader of 50 State Foreclosure Probe Tells Struggling Homeowners: “We Will Put People in Jail”

Iowa’s Attorney General Miller also agreed that principal reductions, loan modifications, and compensation for defrauded homeowners are all on his agenda

The lead Attorney General in the 50-state foreclosure investigation, Iowa’s Tom Miller, told homeowners at risk of foreclosure today that he supports a settlement with the big banks that requires significant principal rate reductions, loan modifications, compensation for citizens defrauded of their homes, and criminal prosecutions against big bank executives who broke the law.

“We will put people in jail,” Miller said, in response to questioning. “One of the main tools needs to be principal reductions, just like in the farm crisis in the 1980s…There should be some kind of compensation system for people who have been harmed…And the foreclosure process should stop while loan modifications begin. To have a race between foreclosures and modifications to see which happens first is insane.”

Attorney General Tom Miller met Tuesday with more than 100 people from 15 states representing community, faith, and labor organizations, foreclosure victims and struggling homeowners from across the country. Participants urged Tom Miller to make a strong settlement that includes loan modification and principal reduction as the primary tools for cleaning up the mortgage mess created by the banks.

Miller also agreed to continue to work with grassroots community, faith, and labor groups from across the country and agreed that the Bank Accountability Campaign’s members are stakeholders who deserve a seat at the table.

“We are very pleased with how this meeting turned out and now our expectations are higher than ever,” said Deacon Mike McCarthy, an Iowa Citizens for Community Improvement (Iowa CCI) member from Des Moines, IA.

“Attorney General Miller made it clear that he sees this investigation as a chance to clean up the foreclosure crisis that has ransacked our communities for over three years now and continues to push down housing values for everyone. He stated that loan modifications will be a core component in any settlement,” said Gina Gates, a foreclosure victim with PACT-PICO in San Jose, California.

“The stakes are high. A strong settlement is the best hope to hold Wall Street banks accountable and prevent millions more Americans from losing their homes,” said Mikael Broadway, from IAF in North Carolina.

“The big banks have repeatedly weakened efforts to get to the root of the foreclosure crisis,” said Shirley Broomfield, a struggling homeowner from Melbourne, Florida who is working two jobs to pay her mortgage. “They’ve failed to live up to their promises and outright ignored the rules of the game, with little to no consequences. The Attorneys General have a chance to change this.”

This is the first of a series of similar meetings with the state Attorneys General who are on the investigation’s executive committee. Participants in the meeting included borrowers who have lost their homes unjustly, other homeowners in danger of foreclosure, clergy and community advocates from 15 states – including Iowa, California, Illinois, Washington, New York, Colorado, Ohio, North Carolina, Florida, Missouri, Massachusetts, Kansas, Michigan, Montana and Oregon. The participants presented a stack of homeowner testimonies to Mr. Miller and made it clear that this investigation is their best hope for resetting the housing market and helping millions avoid foreclosure.

The group is staging protests this afternoon at the Wells Fargo Home Mortgage headquarters in West Des Moines and at branch of Bank of America in Des Moines to highlight the massive bonuses that bank executives will receive this month while millions of homeowners face foreclosure. They plan to lift up a new report showing that restoring equity to underwater homeowners would cost the big banks $73 billion, approximately one-half this year’s bonus & compensation pool. Similar protests will take place this week in New York and California.

The growing activity from homeowner groups comes amidst a turbulent time for big banks, especially Bank of America, with both investor lawsuits and the Attorneys General investigation pending, and some analysts beginning to predict the eventual need to restructure America’s largest bank in 2011.

The meeting with AG Miller and other events this week are organized by PICO National Network, National People’s Action, SEIU, Alliance of Californians for Community Empowerment, Alliance for a Just Society, and IAF Southeast.

Yves here. This is certainly good news, since the public can hold Miller’s feet to the fire if he fails to live up to these commitments. One concern I have is that the standard for fraud under the law, as opposed to from a common-sense perspective, is stringent, which means it is extremely difficult to prove. Remember Joe Cassano of AIG, the head of AIG’s financial products group? An investigation of him did not lead to prosecution, effectively because he has discussed what he was up to with AIG’s accountants. Fraud, as defined under the law, requires intent. So perversely, “I thought this was kosher” will get you out of a fraud charge.

We have a short form discussion in ECONNED as to how various laws and regulations were weakened over the 1990s to make it very difficult to prosecute financial fraud successfully. You can find a full treatment in Frank Partnoy’s book Infectious Greed.

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  1. Eric

    What specific charactersitics would a borrower be on the lookout for to suspect that a mortgage loan had a fraudulent elemtent to it?

    1. furiouscalves

      oh, i dont know, be on the lookout for words like “Bank of america”, “wells fargo”, “freddie mac”, “fannie mae”, “deutsche bank”…

      well, lets just say seeing the word “bank” anywhere in your contract is sufficient to have concerns.

    2. Billy Bones

      If you can’t afford to pay it after losing a relatively high paying job, that’s not fraud necessarily. The article points out how the definition gravited in the formative pre-housing bubble days the 90s. Consider that the housing swindle needed, by it’s very definition, homeowners placed into contracts they were sure to breach or default on. That alone should be the definition of fraud, it sure ain’t no contract. The Banksters should be forced to inform the debtor that they reduce or forgive their debts.

      1. scraping_by

        As is widely known, the FBI did some serious investigation on this while it was happening. The AG group could do worse than take that as a starting point.

    3. david chessik

      Fraud is hard to prove where you have to prove that the originating mortgage lender intended to misrepresent. And usually the originator is long gone by now. And if you can find him, he can say that lacked intent because he’s really, really stupid, and today he’s broke. Further, when the note is assigned, the holder in due course doctrine kicks in. That means that the holder of a note who paid value for it cannot be responsible for fraud in the inducement unless he KNEW of the fraud at the time he purchased the note. Proving fraud in the original note will probably not find a responsible party that you can recover from.

      What fraud could take the banks down? The investors could take the banks to their knees by proving that the notes were not placed into the securitization trusts as required by law and contract. Proving intent is easy here. And a responsible party with resources could be tagged. However, this would likely through the banks into bankruptcy court, where the investor would be wiped out because the notes were not placed into the trusts. Because the notes were not placed into the trusts they are not “bankruptcy remote.”
      The banks and the government will tell the pension funds to be cool, and through QE they will receive every red cent. It is their only hope. The investors could take the banks to their knees, but that is not in there best interest.

      The fraud the homeowner can prevail on is foreclosure fraud. Foreclosure fraud occurs because the banks did not indorse the notes the way that they needed to indorse them. So they try to smooth it over by creating counterfeit chain of title through a fraudulent assignment. These are the documents the banks submit the the trustee of the deed of trust, the recording office, and to the court to prosecute the foreclosure. Many courts are starting to tell banks that they cannot foreclose based on these faulty documents, but nobody goes to jail for it, and judges usually don’t award attorney fees. So after you spend a ton of money that procedure of process requires, and after you prove banking fraud, the judge might just say, your right, they can’t foreclose. People who have that kind of money prefer to walk away from their house and buy another instead of gambling for years in court. People who have no money want some poor attorney to gamble his own money and time to take on banks who have unlimited funding. I believe that every MERS related foreclosure is fraudulent, about 60 percent of the total, but I’ve read that 98% of foreclosures are unopposed. There’s a reason for that.

  2. Jimbo

    How many prominent execs have been prosecuted yet? Where is Steven Rattner? Has he even been indicted? Bush managed to convict Kenny Boy and Skilling. Who has this Dem administration prosecuted yet?

  3. Top Lawyer

    I didn’t explicity read it, but the State (any State) is predisposed to announce it’s intention to assist those “who have lost their homes unjustly”. Apparently, there will never be an attempt to assist those who purchased their homes “unjustly.” One condition of the failed HAMP program was an effort to determine whether the “deadbeat” had fallen behind on his payments through “no fault of their own”. (HAMP itself is a vicious attempt by the Treasury Department to fuck victims)

    Notice how this dovetails elegantly with a complete lack of job security for most Americans. Employers are increasingly aggressive to establish any kind of termination with cause, to prevent UI insurance or any chance of severance. This is an efficient way to downsize. Combine an absense of rights at work, no magic source of income (funds, investments, etc that allows the escape from 9-5 drudgery), add predatory usury for housing needs, rising costs for everything else and the life of some Americans is not only that they are on the losing end of vast divisions of wealth, but their lives are filled with considerably more “risk”, challenges and difficulties with meeting even their basic needs.

  4. Matt Stoller

    If servicer software shows systemic predation and an illegal fee harvesting structure, presumably that could be evidence of intent. Additionally, if LPS shows that robosigning was an organized illegal activity, then…

    1. readerOfTeaLeaves


      But wow, someone is going to need some good computer forensics to find a bunch of wiped drives, I’m guessing. (Security is not my forte, but I’m convinced you are correct about the programming code.)

    2. Francois T

      “If servicer software shows systemic predation and an illegal fee harvesting structure, presumably that could be evidence of intent.”


      Hmmm…No! Computer code is built with a very specific intent. Conceptualization, design, writing, testing modif and re-testing in an iterative fashion…all that jazz to get a software reliably perform a precise serie of tasks.

      Therefore, if a servicer software shows systemic predation and an illegal fee harvesting structure like you described, that would be proof positive of intent.

  5. DG

    It will be difficult to prosecute individuals for fraud when the whole systems itself a fraud. Or at least it was a fraud from 2003-2007.

  6. Ashraf

    Dear Yves,

    I have a media request from Europe for you. Can you please provide me with your email so I can forward it to you. Many thanks.



  7. MichaelC

    Is fraud on the court easier to prosecute than the various types of common sense frauds perpetrated by the lenders, packagers, and servicers?

    The bankers have lots of political allies. Do the lawyers?
    Shooting the lawyers first seems like a good start.

  8. desertflower

    I don’t know, but to my way of thinking, any banks that participate in MERS transactions have committed fraud.The very fact that it was used to bilk the states out of transfer fees, is premeditated. They all knew, and they all signed up to participate in the free money swindle…the homeowners, the investors, and the states, all got caught on the short end of the stick. Am I right? To the tune of several billions of dollars…

  9. Stan

    Regarding the burden of proof for financial fraud:

    Systemic falsification of affidavits submitted to court would be fraud and intent can be evinced from doing things with a reckless disregard for the truth I believe. Please correct me if i’m wrong. Shareholder suits require intent to deceive to be shown by plaintiff. Welcome any comments

  10. AR

    What about chain of title? No mention. Principal reductions & loan mods don’t assure ownership if the title’s messed up.

    Have they seized control of the computers and warehouses? This is a joke. Destruction of evidence has been going on for months, no doubt. Years: missing notes? Mass destruction of notes shows intent. Who destroys notes? That’s like burning money….unless you can rely on the courts to overlook the forged documents. Intent. Fraud on the court.

    60% of the judiciary are members of the Federalist Society. Good luck with convictions.

    1. Sandy

      Exactly, AR! I get frustrated when some keep mentioning no standing to foreclose and the solution offered is to modify the loan. If they can’t legally foreclose, then they can’t legally modify. Those who agree to modify the loan are headed for another headache down the road.

      At the LEAST, the borrower should get every cent paid into the house since the sales contract–including maintenance, taxes and insurance. Let the banks have the homes with clouded titles. As I see it, that egg can’t be unscrambled, at least not without ex post facto idiocy.

  11. Zack

    Was there no criminal fraud committed in precipitating the financial crisis? I realize the foreclosure fiasco makes for good populist political theater, but how about a public investigation of Citibank and Goldman Sachs?!?!

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  12. Rory

    I find it rather hard to sympathize with Shirley Broomfield, mentioned in the article. It appears that she received a 20 day summons on 3/25/10, never responded, and lost her home.

    If she had spoken to any of her neighbors, read Yves, or spoken to a lawyer, she surly would/could have put up a fight. Complaining is a start, but eventually you have to put up.

  13. dcb

    we are already paying for the settlement, what the hell do you think qe 2 is all about. it is our tax dollars and we are getting screwed

    1. david chessik

      What you say has some merit, individual people are corrupt for wanting a house for free because the securitizing banks failed to handle the notes properly. However, what if it was by design? The design extended loans (with security interests) to people knowing they couldn’t repay them. The design got the SEC to NOT require that the contents of the securitization trusts that backed MBS be disclosed in any public document, anywhere. The design had the FED controlled securitizing banks hold onto the notes. The design sold MBS to pension funds representing that notes had been populated into the securitization trusts, when wall street and the FED who was in charge on underwritng standards by way of red Z, knew it wasn’t true. The design creates a counterfeit and fraudulent chain of title when it wants to foreclose, which will cloud clear and marketable title for decades. The design passes that counterfeit chain of title to the taxpayer through Fannie and Freddie. The taxpayer gets the loss on the notes, but the assets stand as collateral for FED loan to the taxpayer.
      By the time the FED destroys the dollar, they will own direct title to tens of millions of valuable properties by way a deceit. It is the end of rule of law, the establishment of a lawless banking tyranny.

      Manning and womanning up requires defending your interests from those who have targetted your freedoms for destruction.

  14. armand eddon

    Predatory lending was just the prick that popped the balloon –THE REAL EXPLOSION was fueled by all the greedy/short-sighted people burning for more house and more appreciation, and the attendant cashout-goodies. Any fool could see where it was leading – certainly this fool could. So suck it up, be a man [or a strong woman, depending on your sex]; learn from the stupidity, or at least hope that others can. The banks did not cause all of your problems. Grow up, be an adult.

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