Matt Stoller is a fellow at the Roosevelt Institute. You can follow him on twitter at http://www.twitter.com/matthewstoller
There’s a rule of thumb in politics, which is that you cannot fight for someone who won’t fight for himself. The players missing from the financial fraud fight are the investors, or in Wall Street parlance, on “the buy side”. These are the entities getting routinely ripped off by the big banks through a variety of means, and at least the pension and insurance industry folks are temperamentally more passive than the more predatory banks. They are also the ones holding the mortgage backed securities whose value is being pillaged by the big bank servicers. But you can see how they are being punked by the way the Obama administration treats them.
Alison Frankel has the goods on Shaun Donovan, who thinks nothing of lying to the investor community.
In a conference call on Feb. 14, Secretary Shaun Donovan of the Department of Housing and Urban Development promised about 90 mortgage-backed bondholders that the $25 billion national mortgage settlement would include a 15 percent cap on the number of investor-owned loans that the five settling banks would be permitted to modify, according to the three participants in the call…
But on Monday, when the settlement documents were finally released, more than a month after the deal was first announced, there was no such cap. That’s left a contingent of major mortgage-backed bondholders feeling betrayed — and expecting the worst from the banks in the settlement. “If we’ve missed (documentation of the 15 percent cap), please Secretary Donovan, let us know where it is,” said Vincent Fiorillo, a portfolio manager at DoubleLine Capital and president of the board of the Association of Mortgage Investors.
It gets worse.
A spokesperson for Donovan, Derrick Plummer of HUD, said the MBS investors are not recalling the secretary’s comments correctly. “I was on the call with the secretary and the AMI group,” he said. “The secretary did not make the suggestion there would be a cap.”
That’s just pathetic. Donovan has been all over the place on this, saying whatever he needs to say to placate whoever he needs to placate. Now he’s overtly calling MBS holders liars. And I have to say, while I’m guessing it’s Donovan’s spokesperson who is being dishonest here, MBS holders should really start to get their act in gear. Had they not noticed the steady stream of bs coming from the administration on this settlement?
Investors need to start putting real resources into their DC presence, they need to begin to recognize that the bonds they own have value based on the ability of the servicers of those bonds to steal from them (or not). They are up against tough, ruthless, predatory actors who call them muppets and talk about “ripping their eyeballs out”.
And they need to get serious about the legal situation. Investors have leverage. The HUD Inspector General hinted at something Naked Capitalism readers will be familiar with, the Kemp vs. Countrywide case in which a bank employee admitted Countrywide didn’t follow proper securitization procedures.
Bank of America may have conveyed flawed or improper titles to HUD because it did not establish control environment which ensured that affiants performed a due diligence review of the facts submitted to courts and that employees properly notarized documents.
The chain of title issue is the nuclear bomb of the mortgage market. Now, you might think it’s risky to threaten to blow up the entire private mortgage market. But really, there is no private mortgage market anymore, and the banks routinely argued in 2009 that any regulatory or legal pressure could cause a meltdown. Threatening to blow up markets if they don’t get their way is how these guys act.
Donovan, in other words, is bowing to the more powerful agent in the fight. He’s sending a message to the investors – “I am not afraid of you.”
If the contours of the fight are going to change, investors are going to have to dedicate time to changing that attitude. I believe that as mortgage backed securities drop in value at rates far more rapid than expected due to predatory foreclosure and servicing related behavior, we’ll see shock from investors. Hopefully that will prompt some action.