Matt Stoller: HUD Secretary Shaun Donovan Attacks MBS Investors as Liars on Settlement

Matt Stoller is a fellow at the Roosevelt Institute.  You can follow him on twitter at

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.

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About Matt Stoller

From 2011-2012, Matt was a fellow at the Roosevelt Institute. He contributed to Politico, Alternet, Salon, The Nation and Reuters, focusing on the intersection of foreclosures, the financial system, and political corruption. In 2012, he starred in “Brand X with Russell Brand” on the FX network, and was a writer and consultant for the show. He has also produced for MSNBC’s The Dylan Ratigan Show. From 2009-2010, he worked as Senior Policy Advisor for Congressman Alan Grayson. You can follow him on Twitter at @matthewstoller.


  1. scraping_by

    Ah, but the investors are people with money. And that puts them on the same side as the banks. Not on the side with those wage-earning losers.

    Whether it’s my fellow rednecks saying “We white people” or my fellow B.A. holders saying “We creative people” or just about everyone saying “We Americans,” the greatest danger is the traitor under the blanket. Misplaced identification. The guy you thought had your back is now stabbing you there.

    Now that banks are the legal custodians of property ownership in this country, they don’t need no stinking investors.

    1. Pal Simon

      Open Letter to Shaun Donovan: In part it shows the following:

      Settlement Helps Fund $4M in Reverse Mortgage Assistance (See link above for details)

      The funds being provided for counseling services will not help us. Only a grant would help us. We think it is nice that counselors can get jobs, but their main duty will be to get us to pay a bill we cannot pay, and, in the end, we will get nothing for that grant except useless counseling. WE DON’T NEED COUNSELING. WE NEED HELP. WE AREN’T STUPID. The counselors will, in effect, be working for the banks, not for us.
      Will there be any real help for homeowners of any kind? Anonymous

  2. Richard


    I am aware of a very substantial effort on the part of the buy-side to lay out what RMBS 2.0 will look like.

    Also, one of the reasons that investors look weak is because there is a buyers’ strike. Simply put, there is no private label mortgage backed securities market (less than a handful of deals since the market imploded in 2008).

    Investors have other options for their money. They are simply not going to come back to private label RMBS until all the issues that have been identified with RMBS 1.0 have been addressed and fixed.

    1. Glen

      RMBS 2.0 – that’s good to hear – both the current lack of a market and an attempt to set new standards. Would this be the sort of effort that HUD should back up and support with rules changes? Maybe use small banks which are not part of the Wall St gang of crooks? Maybe shrink the TBTF banks and grow some honest ones? Seems like an opportunity not to be wasted, but I’m also sure that this administration will.

    2. vlade

      Actually, there is, just not in the US (although of course it’s depressed in general).

      For example, there was quite a bit of demand for EUR paper recently (not that it had anything to do with ECB’s LTRO, of course).

  3. LarryR

    Must be a reason that the investors aren’t pushing hard — maybe they’re too diverse, like the bondholders in bankruptcies . . . who always get fucked.

  4. James Cole

    Maybe “investors” are investment advisers sitting on piles of other people’s money who still get their advisory fees regardless of performance (at the margin) and just don’t give a shit.

    Also, if you’re a big fund with any sort of sophisticated trading going on, there’s only 5 or maybe 10 banks that can provide the services (read “leverage”) you “need,” so you’re gonna be reluctant to sue any of them. Hello PIMCO!

    A consequence of banks that are just too fcking big.

    1. Jack M.Hoff

      Exactly James. But its even more in depth than that. All the pension funds absolutely need 8-10% growth per year to fund their promises to retirees. Why the hell do you suppose they buy into obvious bullshit ponzi schemes like the housing bubble? All the investors need to have their asses cleaned so the whole damn things falls down. Anything less and the 99% will do the paying.

      1. LucyLulu

        It’s been years since even MBS have been paying 8%, at least not “AAA” RMBS, or ones made up of conventional loans, which are the ones the pension funds/institutional investors had to put their money in. The good old days where you could average 8% returns ended when the new millennium rolled in.

  5. jylly jakes

    Right on James Cole! There are plenty of insurance and pension funds that did NOT get burned with “rip your face off trades” in asset backed securtiites. The ‘investors’ are not mega bond fund managers. The investors are passive bond market participants. If you are big bond fund manager, and got burned with RMBS, CMBS shame on you! You were, have been paid more than fairly to do your own due diligence. There are portfolio managers out there in charge of pension funds protected themselves because they asked the right questions, got dissed at times, but made the right calls in their fiduciary responsibilities. How about a fews tweets for those folks?

    1. LucyLulu

      How did these fund managers do this due diligence or what did others fail to do? The funds had been rated by the rating agencies, there wasn’t anything in the disclosures to indicate a problem and the managers didn’t have access to loan level information or typically who had even originated the loans? Where was the due diligence occurring or not but should have been?

  6. Fraud Guy- Also

    I am very familiar with the public pension fund world. They are particularly important buyers because they are not commercial entities and are therefore seen in Washington as reflecting the public interest more than mutual funds or hedge funds.

    Almost 20 years ago, public pension funds recognized a need for a Washington presence and formed the Council of Institutional Investors (CII). The impetus for this was the development of hostile takeovers and the emerging practice of company managers making raiders go away by paying them off from the corporate treasury, a practice known as “greenmail”. The CII was very effective in more or less putting a stop to greenmail via regulation and then broadened its focus to corporate governance generally, with a particular focus on proxy voting for director elections. The organization has been stuck on corporate governance ever since and, in fact, made a formal decision a couple of years ago to formally adopt a charter mandate that it will ONLY focus on corporate governance. Sadly, in my opinion, this decision reflects the fact that the CII’s members are government employees and elected officials. They understand voting because it is central to the political world. Other stuff, whether it’s RMBS cram-downs, how they are getting shafted with HFT, private equity regulation, etc., they don’t really understand and they are afraid to engage for fear of demonstrating their lack of knowledge. So, the bottom line is that public pension funds have self-abdicated any kind of Washington-based effort to look after their collective interests, and I don’t expect that to change soon.

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