Matt Stoller: Why a Foreclosure Fraud Settlement is a RIDICULOUS Idea

By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) or follow him on Twitter at @matthewstoller.

Gretchen Morgenson is ringing alarm bells that a 50 state settlement on the foreclosure fraud issue is on deck, and is spelling out some of the details. There would be some principal write-downs, random cash payouts for those who were foreclosed, and money to buy off nonprofits in the states that work on housing issues (a classic Fannie/Freddie Dem friendly tactic Morgenson and Rosner exposed nicely in their book Reckless Endangerment). The settlement looks vague and stupid, and will probably be executed with the care and competence of HAMP. But let’s put that aside.

What makes these discussions so utterly absurd, so ridiculous, and farcical, is that robo-signing, an abuse the banks have admitted to and clam they’ve ceased, is still going on. The AP reported this in July; mortgage servicers in Nevada have stopped foreclosing because of a law explicitly criminalizing robo-signing. Yes, the banks are asking for a release of claims on acts, or perhaps crimes, that are ongoing. And these abuses are extensive: lying to investors about the quality of the mortgages; violating their own contracts by failing to convey mortgages properly to securitization trusts; charging fees that are impermissible under Federal law and the contracts; making a mess of property records and engaging in deceptive consumer practices through the use of MERS; and engaging in document forgeries and fabrications in foreclosures. All these people trying to give the banks “a settlement” are in fact immunizing banks against acts they are committing and will commit going forward. Only in the future, when a voter complains to his or her state AG, that official will have to explain to that voter that his/her rights have been given away.

We’re talking about an ongoing case of criminal theft of private property by mortgage servicers charging illegal fees and then using fraudulent documents to foreclose. Now, a settlement implies that this practice is over, and that the banks are remediating past wrongs. It isn’t over, but the AGs and Federal regulators are treating it as if it is. Think about this incentive – why should a bank change its mortgage servicing once it has immunity for robo-signing, origination, pyramiding of fees, etc? The last consent decrees weren’t enforced, why would this one be enforced?

This speaks to the basic issue at hand, which is that there has been no serious investigation of the problem, on a Federal or state level. We don’t know how widespread the problem is, or how to fix it. My guess is that even the banks have no idea how to fix it, even if they wanted to. They have systematically under-invested in their mortgage servicing operations, and they don’t intend to do it right next time. Why should they? The fine is cheaper, especially when you layer on second lien exposure (the big mortgage servicers own a lot of second lien debt while they only service first lien debt, leading to a massive conflict of interest). Hell, this might even make them money, if they can write off first lien debt which would elevate the value of their second lien holdings.

The larger problem is that banks mistreat homeowners and abuse property rights, and this is going to continue and worsen until the housing market just dies. During the mortgage servicing process, homeowners complain of poor service, lost records, inconsistent treatment of modifications, and fraud. During the foreclosure process, it’s clear that banks have been falsifying documents and records to foreclose, which allows them to get around fraud in the original securitization process. Without a thorough investigation of the documentation issues at hand, an investigation this settlement precludes, there will be no way to bring back certainty to the mortgage market, ever. The rule of law matters when it comes to property rights. Allowing banks to just take property from homeowners will ultimately cause the death of homeownership. But you don’t believe me. Just look at the housing market.

My guess is that what will happen is that this “settlement” will go through, the banks will do some PR about helping some homeowners, but the robosigning and other abuses will continue. And this time they’ll have immunity from the state AG.

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    1. Art Eclectic

      Exactly. Everybody is only too happy to participate in fraud when they are a beneficiary, that includes banks as well as borrowers.

    2. Patricia

      “Everybody knows that the dice are loaded
      Everybody rolls with their fingers crossed
      Everybody knows that the war is over
      Everybody knows the good guys lost
      Everybody knows the fight was fixed
      The poor stay poor, the rich get rich
      That’s how it goes
      Everybody knows”

      (Leonard Cohen)

    3. Winston Smith

      No, that’s collective punishment. Not surprisingly, the originator of the quote, Joseph de Maistre, was an enthusiastic servant of the 1% in his day:

      “Maistre disliked democracy and believed that hereditary monarchies were a divinely-sanctioned, superior form of government. For example, he opposed the French Revolution and supported restoration of the French monarchy. And, in his 1811 letter [where the quote appears], Maistre was actually expressing his negative views of Alexander’s reform policies in Russia. He said a European-style constitutional system would be “over the heads” of the Russian people.”

      1. Fraud Guy- Also

        I think the rhetoric of critics has gotten a bit ahead of itself here:

        “…there has been no serious investigation of the problem, on a Federal or state level.”

        What are Biden and Schneiderman and the Nevada AG doing if not investigating now? Either blogs like this one should acknowledge that they are investigating or alert us that they specifically are not, despite a posture of being on the public’s side, so that we can kick them in the pants.

        1. wunsacon

          Yves previously mentioned that few or no subpoenas have been issued and that hardly any discovery has taken place. When you start entering into “negotiations” prior to discovery, you’re negotiating with little leverage.

    1. Yves Smith Post author

      No, they left the negotiations. Both Biden and Schneiderman have filed some important suits as the negotiations continued.

      They will be pressured to drop them if there is a deal, but they are already under pressure. There have been some anti-Schneiderman stories that were clear plants.

  1. Norman

    All things considered, it seems that everyone is forgetting “good ol’ Murphy’s Law” in the equation. With the police taking sides Re: the OWS across the country, we are seeing that the plutocracy already has splinters in their grand plan, regardless of whether or not the “O” spreads his fairy dust & waves his magic wand. There aren’t enough of them against all the rest, regardless of what kind of clothing they don. Life as we have known it, is going to change, regardless of how many toadies are out there.

  2. Daniel de Paris


    For sure there are countries (and time periods) where the sheer notion of “fraud settlement” would be a legal nonsense. Per se.

    Of course not to-day’s America. By the way we certainly feel the drift in our judicial system here in Europe. A change that allows negotiation and settlement on fraud.

    Kind regards to Yves for her contributions on this essential issue.

  3. lambert strether

    Well, surely Obama won’t offer retroactive immunity to major corporations for illegal acts, even while the criminal activity is going on. Oh, wait…

    * * *

    Remember FISA, anybody? Obama surely will, if he can.

    1. Gil Gamesh

      Who needs immunity if public officials refuse to enforce laws? BTW, have you noticed that the only law Obama seems to have learned at the redoubtable Harvard Law School is the statute of limitations.

    2. abelenkpe

      Yeah because we all know this hasn’t happened in the past or is even really sop throughout the entire history of the US.

      Not that that makes it OK. It just doesn’t make it surprising or anything new.

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

      Very few words, but lots of punch in them.

      What clearer evidence does anyone need to understand that our government, at both Federal and state levels, is a major part of the criminal conspiracy? I can’t think of anything that shows that more clearly than this settlement.

      1. Jimbo

        Me neither but we are the uneducated and stupid population Jefferson warned about that would bring an end to freedom.

        1. nonclassical

          hmmmnnn…I asked potential schoolboarders this evening whether they favored a “fully-educated workforce” only
          20% of Americans graduate from a 4 year university or vocational equivalent….compared to over 70% in Europe=SOCIETY…

          ..the “answer”, from a LAWYER running for schoolboard=
          “my understanding is 50% of Americans go on to school beyond
          secondary (high school)…

          what part of GRADUATE, 4 YEAR degree (or vocational equivalent), didn’t the good lawyer choose to address??

  4. sleeper

    Here’s how it will work –

    It’s clear that the folks in Washington believe in a sort of quid pro quo in which pay to play sets the rules.

    As part of the upcoming reelction we can expect the incumbents to sell a sort of protection to the banks – the sell to the financial players will be “Folks are mad at you – they have their pitch forks out” but for a few donations we can put the investigations / prosecutions on hold”. Note that nearly all of the DOJ / SEC / FBI investigations / prosecutions are limited to bit players – we’ll continue to hear the ususal excuses – “Our budget is limited” “We don’t have the expertise” “Conviction is iffy in this environment” of course these are all lies – As pointed out in the recent Country Wide whistleblower’s revelations wire and mail fraud was / is wide spread in the financial industry. Of course the executive branch would never prosecute on such simple easily proven charges as these.

    We have already seen small donations drop significantly for some of the incumbents so we can expect the “donations” for the financial sector increase to make up the difference.

    So a continuation of extend and pretend is in the cards as the incumbents whistle past the graveyard at midnite while colecting “donations” (bribes).

    And perish the thought of any prosecution. It might uncover some nasty things.

  5. Bravo

    Yves and Adam Levitin have recently reported on the purported investigation at the big banks per the OCC enforcement order as to the issues alluded to above. Of course, the credibility of that investigation is suspect due to market perception that the OCC is captured by big banks. That perception is only reinforced by the fact that the results of the OCC directed investigation (being paid for by the banks) won’t be made public and the fact that the administration seems to be pushing to absolve bank liability asap via the AG settlement, long before the results of the current OCC enforcement investigation are known. Any attorney general selling out their their states’ underwater homeowners interests even before the results of that bank paid for investigation are at least disseminated to AG’s, should surely have their political careers ended by voters next fall.

  6. Paul Tioxon

    With each passing revelation, and the passing decades, in addition to economic de-industrialization, we are watching the commensurate, co-evolving of political de-NATIONALIZATION. What characterizes a nation state, since the modern form has been established since the mid 1600, especially the strongest formulation as seen in France and the UK, the strongly centralized national government, with an extensive bureaucracy to project and transmit uniform standards for citizens, to work, invest, travel, re-locate, move about socially and economically and have their decisions protected from unwarranted violent force, to create a lifetime capacity to plan and calculate decisions of an ordered existence, all of this is under attack and much of it has changed, with only the amount of critical mass of accumulated wealth as a guarantor of stability over an individual’s lifetime.

    Denationalization in its most brazen and principle form, is the attack on the legitimacy of a democratically controlled republic to collect taxes from its citizenry. It is the same kiss of death of denying a company sales, not taxes upon profits, but the very right to conduct business at all by being able to collect the money for the price of your offerings. In America, as it is currently constituted, in order for business to operate, the forgotten part of the social order is that not every one can be the boss. Not everyone can be in business for him/herself. From the smallest to the largest enterprises, the need for labor, for people who are not the owners, the founders, the shareholders, the partners is required, especially for the largest of the large the Global 2000 the Fortune 500.

    Somebody will be the one and only CEO, but millions more will be the employees. As long as the wealthiest understood that there is a minimum that must be distributed, as it was for a while, for most Americans, we could all lives of predictable security, and go off to work, knowing that our families were taken care of and even a fair amount of leisure was a common reward.

    Not everyone can be a billionaire or millionaire, but everyone in a country as rich as this, can live a routine life free from the anxieties of want, NEEDLESS want placed upon an exploited citizenry. BUT NOT ANY MORE. The 2 class pay scale of the auto workers is the tell of the dual state that is being erected in the ashes of the de-nationalized America. The restructuring of the social relations is evidenced in the concentration of wealth into the hands of such a small group of people, it looks like a political process of take over guided by a 6 Sigma consultant. The de-legitimizing of the state, the political actors, bureaucrats, who were placed into their offices with voting consent of the populace at large, are attacked as decoupled lunatics that don’t know how to educate, put out a fire, stop crime, or spend money with any restraint what-so-ever. And these denunciations are EVEN given by billionaires from the studios and pages of their personal multi-billion dollar media holding outlets. The apparent conflict, arising from the handsomely rewarded attacking a system that made them so fabulously and incalculably powerful that tyranny is undermining their humanity, and diminishing them in their person-hood with each and every penny that they can not control, because they HAVE to give it against their will, to the government that is set up to allow them to amass wealth in the first place and will protect them in keeping it, is too much to bear without taking to the streets in protest.

    The bank fraud is by passing the legal system, because it is a political barrier, that is a drag on profits and slows down the throughput of activity to a speed less than what high frequency trading Wall ST is accustomed. The laws and procedures and practices for documenting property for homeowners, on a local basis, is too fragmented for cost cutting high volume, low cost solution providers over the internet. So the problem to overcome with this barrier for capitalism is solved by obliterating it. In this case, the legal system of the state as pertains to property rights for the average flesh and blood human being is being jettisoned, is being de-nationalized so that the free market will provide the social order for our routines of behavior.

    FOR THE FREE MARKET TO RULE, THE NATION MUST DIE. It’s institutions that provide for the learned behavior that we come to understand and grow to master in the course of our everyday lives is being replaced, common law with uniform commercial codes, political power from the ballot box with massive wealth and the guarantee of security within the territory that we live in, on the city, county, state or national level, is replaced with the raging, consuming maw of the market. Territorial boundaries, and the laws that govern them fall, to the flow of capital, sure, swift, in, out, here to day, gone after lunch. The nation state, the land that we live upon, the soil we walk upon, the real estate that we make our HOME-LIVES upon is being erased so that the market never has to slow down, so that capital can always flow and profits can always increase, no matter the damage to the society that they are extracted from.

  7. Carl

    Yves, thanks for all of your posts and links! I have been reading you now for over 6 months and for some reason- my guess reading all of the content on or linked by the site – I have not commented yet. So I have a question, which article would you suggest as to sum up the criminality that’s been going on for three decades. Sure 2008 was pinnacle, but we know the revolving public/private door has been around for some time. In your honest opinion, what is your best macro-assesment piece that you have? I often see people via facebook, twitter, etc. that say “I’m so annoyed by the occupy movement, blah blah” and really I shouldn’t care to inform them, but I am looking for something that sums up the criminality: open insider cronyism the FED and it’s subsidiaries take part in on a daily basis, market manipulation, etc. I’ll post again with a piece you wrote a few weeks back, maybe we can develop a succinct and thorough list of all criminality. Anyway, back to work and thank you for your suggestion if you happen to read this. Cheerio.

    1. NOT Yves

      I’ve been a fairly consistent reader of the blog since early 08′ and I don’t recall seeing anyone make an attempt at posting a comprehensive catalog of Wall Street’s crimes, although Yves’s book does a great job of making the case against Wall Street and the failed policies of “Free market” ideologues in academia and the beltway.

      This might be something the anti-OWS types can get their head around if they are actually willing to process the information.

      This piece is far from comprehensive, but then again none of your low-information, right-wing, anti-OWS types would be interested in reading a list that big anyway.

      1. sgt_doom

        Geez, I’ve seen the crimes repeated over and over again, our fearless leader, George W. Obama falsely claiming that the bankers broke no laws, to the contrary.

        First, the ultra-leveraged run consisting of selling $60 to $100 for every $1 worth of debt on hand, and working up to $1,000:1 and then the collapse, along with their ultra-leveraged speculation using that ultra-leveraged credit derivatives, plus the added financial manipulation utilizing naked credit default swaps process, constitutes a massive criminal conspiracy.

        Moving on to the present, there is the filing of millions of false affidavits, which equates to millions of felonies committed, along with millions of violations of the Internal Revenue Code due to wrongful citing of REMIC status when they blew it up, and finally, while violations of the Uniform Commercial Code are normally civil infractions, when done knowingly on the level of millions of times, it constitutes yet another criminal conspiracy.

        Plenty enough to put them away forever, even ignoring the Foreign Corrupt Practices Act and the Law of Fraudulent Conveyance extant in many states.

        (But I heartily recommend everything my fav investigative reporter, Matt Taibbi, has written and will write.)

    2. JTFaraday

      I think the Magnetar and Abacus deals best show off their criminal sociopathy, while also demonstrating beyond a reasonable doubt that they were driving the whole mortgage “market.”

      There’s a google search box at the upper right, but there’s way more than one article.

  8. Spacecabooie

    That Former Florida representative Alan Grayson’s former Senior Policy Advisor (Mr Stoller) authored this post reminds me of the frustration that moderately recent purchasers of Florida homes should feel.

    The states with the worst overbuilding also represent large numbers of mortgage crime victims, including robo-signing and foreclosures, etc., etc., but are the farthest from a willingness to divorce from the settlement. What kind of representation is this ? What does it mean when a crooked governor like Rick Scott – the person holding the office of Governor in Florida at this time (and already criticized for firing the state’s popular Senior Home Ombudsman because the Ombudsman’s group of volunteer quality inspectors were doing their job too well to suit Scott’s actual constituency, his fellow health care provider criminals) – is in de facto in agreement with the presidential administration’s Foreclosure Fraud settlement ?

    And Florida’s A.G. fired the two female employees in her department who were responsible for exposing and attempting to prosecute the initial and most important robo-signers – I’d like to see Ives put out an expose on where the investigation into their firing now stands.

    It would seem that Mr’s Grayson and Stoller are needed in Washington now more than ever. I hope the campaign is going well, and as a resident would love to have enough time to actually spend in my state of residency (rather than being constantly on the road working where the jobs and talent and skilled professionals actually are located) that I could volunteer for it. That optimism for the campaign aside, once in office I would hope that the Warren approach – less shrill, more serious – would carry Alan’s day.

  9. The Infamous Oregon Lawhobbit

    Our AG is lame-ducking it, so no voter is going to get any explanation of any value from *his* office.

  10. Westcoastliberal

    I think enough of us have made our position against any any “settlement” pretty clear to the TPTB. If they don’t take our opinions into account we need to vote all the incumbents out in the next election cycle with the warning that if the “new” guys don’t heed us, we’ll vote them out as well.
    It’s the only option we have in the rigged game that is American Democracy.
    I got screwed by Quicken Loans and then Chase Home Finance to the tune of about $50K. Hell, Quicken couldn’t even set up my escrow properly, then came back 9 months later and wanted an extra $900 a month for the upcoming year! There’s more to this mess than just “robosigning”. These guys are all crooks.

  11. Nathanael

    It has been pointed out (more than once) that state AGs are incapable of “settling” private rights of action generated by the numerous frauds against individuals.

    Now that judges have started to wake up to the brazen frauds, many of which are frauds on the court which can be punished directly by a judge on his own behalf, do the banksters really think they can just wipe it all under the rug?

    Well, they can’t. If they actually buy enough judges and legislators to legalize fraud, that’s the *end*, because you’ll see everyone in the country joining the Occupy Wall Street movement.

    By the way, watch Greece — there’s going to be a revolution soon.

    1. another

      “By the way, watch Greece — there’s going to be a revolution soon.”

      May it spread around the world.

  12. Francois T

    “This speaks to the basic issue at hand, which is that there has been no serious investigation of the problem, on a Federal or state level. We don’t know how widespread the problem is, or how to fix it.”

    The basic issue at hand is that there should have been investigations since 2004, when the FBI, no less, warned of systemic criminal fraud, only to get stiffed by fuckheads like the OCC and the Bush admin financiers’ minions.

    As for Obysmal and Timmy Gangster, they’re clearly no better.

    The reason why the basic issues weren’t even dealt with in the first place is that this country is run by big money and a two-tiered justice system that shelters the elites from any punishment no matter how egregious the crime. To be sure, there are individual exceptions, but they’re just that; exceptions.

    In any case, this soon won’t matter anymore. Greece govermin is calling a referendum on Austerity. If the answer is “No!” the game will be up.

  13. C

    Is there a mechanism for homeowners akin to Bankruptcy? I.e. one where an underwater mortgage can get the state to force a modification?

  14. Jay Spencer

    We don’t need more comments about how badly the banks are behaving. We need to unite behind a meaningful solution. Webster Tarpley ( has a 5-point program on his site that’s a good place to start a dialogue about what can be agreed upon by a majority of the 99%. Chief among his 5 points: 1) The “too-big-to-fail” banks must be seized by the FDIC for Chapter 7 liquidation; Ban the CDS and ARM; levy a 1% Tobin (AKA “Robin Hood”) tax on all financial transactions (especially derivatives). 2) Nationalize the Fed, and provide 0% credit for productive activities. 3) Launch public works programs to restore our crumbling infrastructure, and other measures to return the federal budget and foreign trade to surplus in 5 years. 4) Defend and expand the social safety net; cut healthcare spending by finding cures (and through prevention), and other measures. 5) Promote major sets of international initiatives, including a replacement for the IMF and a worldwide “Marshall Plan” that would stimulate business here as well as abroad. In summary, he says that “This program will create 30 million jobs in less than five years. It will end the depression, rebuild the US economy, improve wages and standards of living, re-start productive investment, and attain full employment with increased levels of capital investment per job. Most orders placed under this program will go to US private sector bidders. Because of the vastly increased volume of goods put on the market, inflation will not result.”

    Now what we need is a way to get legislators in office who are not owned by the powers that be, who are apparently fine with the coming worldwide collapse that is otherwise imminent, as long as they have their golden parachutes, a nice island to land on and a supply of bullion waiting for them when they touch down.

  15. What are settlements

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