Abigail Field: Hiding the Enforcement Fraud at the Heart of the Mortgage Settlement

By Abigail Caplovitz Field, a freelance writer and attorney who blogs at Reality Check

Update: When reading about how “our” government sold us the servicing standards as the big prize in the deal (along with the $25 billion that isn’t) even as they agreed the standards wouldn’t be meaningfully implemented or enforced, remember that the Consumer Financial Protection Bureau will be rulemaking on servicing during the settlement’s duration, with its rules set to take effect in 2013 and 2014, well before the 2015 expiration date of the deal. So the “standards” in this deal are even more useless than they otherwise appear.

On Thursday, April 5th U.S. District Court Judge Rosemary M. Collyer announced she had decided to sign off on the “$25 billion” Mortgage Settlement. By “announced”, I mean she signed the consent orders all our major law enforcers and the biggest bankers had agreed to, and entered them into the record. Judge Collyer didn’t actually say anything about the deal. She didn’t let anyone else say anything, either: she didn’t hold a public hearing on the deal.

In acting silently, Judge Collyer not only okayed the deal’s lousy terms, which institutionalize servicer theft and foreclosure fraud, she reinforced the incredibly poor public process that’s kept the enforcement fraud at the heart of the deal hidden. Deliberately hidden.

Magical Misdirection

To understand just how deceptive “our” government and “our” law enforcers have been with us, imagine them as a Shakespearean magician, confessing his thoughts to us as he tries to trick an audience seated just off stage. Hear the magician, as he secretly pleads for his misdirection to work:

‘Please, keep focused on this hand, the one with the wand waiving above the shiny new servicing “standards.” Pay no attention to what I’m doing with my other hand. Please don’t notice me transforming the “standards” into empty promises through the ‘magic’ of metrics.

I must succeed at controlling and guiding your attention, so you fall for my trick! Otherwise, my trick is obvious-my ‘magic’ is all there in black and white, in Exhibits E and E-1. So don’t look there…stay with me, stay focused on the new servicing “standards” and that big sounding “$25 billion”…

Think I’m overstating the deliberate deception in selling the Mortgage Settlement as something other than the enforcement fraud it is? Let’s review the history.

Keeping People Focused on the Servicing “Standards”

From the very beginning, the initial deal announcement a year ago, the government tried to sell the premise of the sleight-of-hand to come: Tough law enforcers, banding together, would force the bankers (wearing their mortgage servicing hats) to transform their abusive and illegal standard operating procedures into the basic, ‘thou shalt follow the law and deal fairly, in good faith’ standards ultimately embodied in Exhibit A. Here’s how the Washington Post presented what was happening on March 7, 2011:

“The state attorneys general investigating abuses in the mortgage servicing industry said Monday that as they hammer out details of a massive settlement with banks, their main objective remains fixing a system that has subjected consumers to confusion and financial strife.”

What we’re really trying to do is change a dysfunctional system,” said Iowa Attorney General Tom Miller, the point man for a 50-state effort.” (bold mine)

Fixing servicing, folks, that’s what we’re doing, fixing servicing.

But the Post reported that people wanted more. At the same time Miller was making those statements, protesters organized by the National People’s Action network were telling law enforcers to “stiffen their backs”, “do justice”, and “make Wall Street pay.” But the AGs kept guiding everyone’s attention back: “Illinois Attorney General Lisa Madigan sought to comfort the protesters. ‘For those consumer advocates who are rallying, we hear you,’ she said. ‘Laws are not being followed by the servicers. That absolutely has to change.’“Keep your eyes on those shiny new servicing standards we already leaked, folks.

At the start, it wasn’t clear the misdirection would work. Here’s my coverage of those initial leaks. Yves Smith also wasn’t buying. We weren’t alone; skepticism abounded. But still the misdirection efforts continued. Throughout the year of negotiations leaks regarding servicing, the “$25” billion, principal reduction, and vague statements of strong enforcement provisions dripped out.

We skeptics knew the banks’ word is no good, so we hammered on the enforcement issue, confident that at least some of the AGs understood. Heck, Nevada’s Catherine Cortez Masto sued BofA for breaking its word, and Massachusetts’s Martha Coakley sued all five bailed out banks, because they weren’t negotiating in good faith. Naive us; in the end all the AGs took the deal, except Oklahoma’s, who rejected this enforcement fraud as too harsh. Worst, our demands for transparency and accountability were so ineffective that when the deal was announced on February 9th, with great fanfare and consumer group support, the enforcement terms, particularly the metrics, hadn’t seen the light of day. “Our” government’s magical misdirection machine was that powerful.

On February 9 the government also launched a slick website, www.NationalMortgageSettlement.com that, for the month between deal announcement and deal submission to Judge Collyer, had only an “Executive Summary“, a “Fact Sheet“, a “Benefits to Servicemembers and Veterans“, a “Servicing Standards Highlights” and some “FAQ“. That is, only the ‘good’ stuff–nowhere on the website were the metrics or any other meaningful discussion of the enforcement terms.

Servicing Abuses Institutionalized, Not Ended

Can you imagine the brouhaha if people had a month to really look at and consider the enforcement terms? The flaws aren’t limited to how pathetically weak the compliance metrics are.

To recap: no one yet knows which servicing “standards” will take effect when, or if the deadlines will be extended as the deal allows. Until a standard is in effect, there’s nothing to measure compliance with. Worse, the the measuring process itself still has to be negotiated, so standards may take effect without a compliance process to verify implementation. Worst, the metrics let the servicers systematically steal from you and defraud the courts without risk of consequence. Heck, even if all servicing standards take effect before the deal expires, and all the work plans are finalized so that all the metrics are being computed, and banker theft rises to the level that a bank fails a metric, no penalty kicks in unless it’s the second quarter in a row that the bank failed that metric.

How’s that for a show of brute law enforcement power by our big bad government? “Our” Justice Department, “our” federal regulators, and “our” attorneys general really transformed the servicers business practices, right?

Ironically, on the day that Judge Collyer silently sent the deal into the public record, Bankruptcy Judge Elizabeth Magner issued a stunning indictment of both Wells Fargo’s systematic theft from borrowers and its bad faith in negotiations. See Yves Smith on Magner’s opinion here, and David Dayen here. One judge wrung more out of Wells for stealing from a single homeowner–$3+ million in punitive damages–than Wells faces for a whole quarter of similarly stealing from many of its borrowers.

But let’s not get caught up in how bad the deal is; I want to stay focused on the magician’s telling us to where to focus our attention so we think he really did pull a bankers-will-obey-the-law rabbit out of his hat.

Four days after the deal was announced, the Wall Street Journal published drafts of some of the deal documents. Notably a draft of the metrics or any other part of the enforcement section was missing. The Journal only linked to the deal parts it was given, the ones the power structure magicians wanted us to see: the “Servicing Standards,” the “Borrower Relief”, and the “Menu of Credits.” That is, promises the banks would follow the law going forward, that homeowners would be helped, and for the sophisticated, that the help would be even greater than $25 billion. Just one sentence on enforcement– “Also included in the final deal: terms spelling out what powers are given to the independent monitor overseeing the deal, and rights of action for states if banks are found to run afoul of the terms.” No sneak peek at what that the magician’s other hand was up to.

The very first time that the public had a chance to see that the promise of banker law-abiding going forward was a lie was March 9, 2012, the day the deal documents were filed in court. Even then the misdirection continued.

Hiding In Plain Sight

Even though the text of Exhibits E and E-1 were now available for viewing, the government steered attention elsewhere, toward the complaint. The complaint is the easiest to read, and it is featured most prominently on lead “negotiator” Iowa Attorney General Tom Miller’s website of deal documents. See? “Complaint (PDF)” is in bold, and perhaps larger font, than all the other linked documents below it. Similarly, now that the mortgage deal website is updated to reflect the Judge Collyer-okayed deal, this is how the information is presented to the public:


USDOJ Filing News Release (pdf)

Complaint (pdf)

Ally/GMAC Consent Judgment (pdf)

Bank of America Consent Judgment (pdf)

Citi Consent Judgment (pdf)

JPMorgan Chase Consent Judgment (pdf) (Note, I can’t find JPMorgan Chase’s signature on it–the other banks signed on the last pages of theirs, but hey, Judge Collyer signed it and it’s uploaded on the official site as JPMorgan’s Consent Judgment, so it must be so.)

Wells Fargo Consent Judgment (pdf)

Consent Judgment Exhibits A-I (pdf)

Self-congratulatory press release, the complaint, the bare seven page agreements to the deal (followed by tons of signature pages) and then, at bottom, the no-content labelled “Consent Judgment Exhibits A-I (pdf)”.

‘What are Exhibits A-I?’ someone might wonder. Doesn’t sound like important reading. How likely do you think it is that someone will click through, scroll down, find Exhibits E and E-1 and read them? AG Miller’s site, complaint highlighting aside, is much better on this point, breaking out each exhibit by bank with labels that tell you what they are. The Justice Department’s presentation is in the middle; the complaint tops the list of documents, but isn’t bolded; however, the critical exhibits aren’t identified in any way. They’re simply included with each consent judgment.

Since the audience is being steered to the complaint, what do they get if they read it? Well, here’s my take, which is basically that the complaint’s so harsh sounding it’s impossible to understand why we haven’t seen a single indictment of a big banker. The harsh language is part of the misdirection: boy do they sound tough on the banks, so surely the deal struck is tough right?

Some facts, besides enforcement, were apparently so risky to let the audience see, they weren’t included in the complaint though naturally they would have been. That is, the complaint says only something vague about all the origination fraud the banks committed, though it details other kinds of wrongdoing:

“67. In the course of their origination of mortgage loans in the Plaintiff States, the Banks have engaged in a pattern of unfair and deceptive practices.” (see page 28 at B)

To understand how badly the bankers abused consumers when making loans, you need to read the relevant section of the federal release …

“D. The United States further contends that it has certain civil claims based on thefollowing conduct: …

[lists 13 different kinds of bad stuff]

Why is detailing origination fraud in the document the public is most likely to read risky? Well, consider origination fraud type (e):

(e) Valuing the properties used as collateral for such loans…

(e) is talking about appraisal fraud, a topic that deserves much pointed attention at a time when so many borrowers are deeply underwater. But for the rampant, lender controlled appraisal fraud inflating the original principal balances, fewer people would be underwater, and those that are would be closer to the surface.

…I mean, it might be very difficult to maintain the irresponsible borrower stereotype if millions of people started focusing on origination fraud. And solving the underwater problem doesn’t pose such a moral hazard if all those balances were fraudulently inflated by the lenders, does it? Sticking all the origination fraud detail in the complaint looks like an effort to hide truth that could impact policy if only people knew it.

So there it is–for over the last year, “our” government has carefully steered your attention where it wants it, maintaining its tough on bankers, fair to the public illusion. Now Judge Rosemary Collyer has played magician’s assistant, signing off quietly, not risking redirecting the public’s carefully guided attention.

So here’s the bottom line: will the media and grass roots groups let the trick work all the way through election day? Or will they snap the public out it, break the spell? I mean, just imagine how angry voters would be if the enforcement fraud is seen clearly for what it is.

And then the big question is: will the new servicing standards promulgated by the Consumer Financial Protection Bureau be yet another exercise in misdirection and enforcement fraud? Or will Americans finally get some change we can believe in?

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Mcmike

    Where’s the county clerk backlash? The banks stole millions upon millions of fees, and told every clerk in every county in the nation to shove their puny rules and requirements into the shredder.

  2. Javagold

    how is that i still know more of what is going on then our county clerk !!!……she even told me she never heard of Linda Green

      1. Seth

        Obama is, without a doubt, the worst president in history. I give him that title for endorsing and expanding every single one of Bush’s worst policies. Signing Lily Ledbetter and DADT repeal doesn’t make up for all that.

        The U.S. is now completely over as a representative democracy.

  3. 2little2late

    This problem is so much bigger than Americans have any notion of, until it broadsides them like the rest of us. And for many it will.

    I have criminal, not just civil, fraud in my case. The originating lender sold the loan to two separate banks, and now they’re are attempting to hide that fact through yet another perjured document…and keep in mind that all of this is done through recording, which is a felony in and of itself. And NOBODY gives a shit! I went to:

    The OCC: They sent my complaint off to the entity I’m complaining about. Thanks for that.

    The FBI. They said they lacked the budget. Go to the police. (Can you imaging trying to explain to two badges in a patrol car about fraudulent document conveyance and the subsequent suborned perjury?)

    District Attorney: They told me they like to go after people defrauding banks, not the other way around.

    AG: I’ve met with them on multiple occasions. Due to their strict data-privacy act, they say absolutely nothing….their presence is akin to sitting in a field at night with deer bathed in halogen lights. They’ve said nothing whatsoever. However, their actions have spoken volumes, as detailed so eloquently above. Back in the U.S.S.R.

    1. Nathanael

      Next step is the media. DAs are elected, right? You need to get a *recording* of the DA saying he prefers to sue people defrauding banks and doesn’t like to sue banks defrauding people. Publish it. Then run for DA.

      This is politics.

      1. Nathanael

        Note that the media ITSELF is a problem, of course; you’ll have to work out how to deal with that problem, locally….

  4. Elizabeth Cook

    The ruling class simply has too many resources under their control to combat in the “normal” way. You got to think outside of the box…like Occupy.

    1. R Foreman

      ..and we’ve seen how disturbing it is for them when the masses get organized. Occupy works, but the country and economy have to be further destroyed by the 1% in order for Occupy to reach a critical mass. More of the population needs to be marginalized, disillusioned, and looted. Too many of the ‘middle class’ still believe in the system, and the less educated won’t get it until they can’t feed themselves.

      The system is no longer providing recourse or redress of grievances. More people have to see this for any meaningful change, since the elite (and their bullhorn media) are preventing change whenever possible.

      1. Nathanael

        Luckily (?!?!) the elite shows no intention of stopping their crime spree. They don’t know when to stop and it will doom them.

        What a mess they are making for the rest of us.

  5. Up the Ante

    “But the Post reported that people wanted more. .. But the AGs kept guiding everyone’s attention back: ”

    You could easily substitute ‘AP’ for the AGs. How many absurd business pieces by the AP have been written on the mortgage settlement that have enabled enforcement fraud ?

    the federal judges spectacle

    Here’s a little insight on their chosen response, the federal judges will?/will not? ‘LEND’ to each other justice in rare supply,

    These federal judges do have the option of choosing between hiding the sausage .. passing the baton .. rubberstamping and moving as expected against obvious frauds. Decision reversal of sorts,
    If they do not ‘move’ how to explain the paralysis ? Quality of life as paralyzed as a federal judge ? So desperate in modernity.

    “Judge Collyer .. reinforced the incredibly poor public process ..”
    the spectacle

  6. Lavrentij "Anarchy99" Lemko

    Bravo, me Covington and Burling lads! No evil deed by the kleptocrats should go punished —
    — Lavrentij

  7. LucyLulu

    Thanks to Abigail, and Yves, Bill Black, and all the others exposing the fraud and lies at the heart of the mortgage fraudclosure scandal. Keep up the good work!

  8. diptherio

    It seems obvious that the Federal gov’t is unable or unwilling (or both) to provide a sound and secure banking system. Just one more reason to support the creation of state banks. I don’t think it’s a coincidence that North Dakota has seen the lowest level of foreclosures in the nation. Fewer mortgages from big banks=fewer liar’s loans=fewer foreclosures. The BND has successfully insulated the state from the fraudulent practices of the big banks. It’s time that other states follow suit.


  9. ArkansasAngie

    And … you are going to vote for these criminals in November? There is no lesser of two evils when comparing Republicans and Democrats.

    Until we throw all of these yahoos out on their ears there will be no justice. Change? Change you can believe in? Unelect the lot.

    I will vote for Paul. Not because I like everything he says or has said in the past. I will vote for him because his name is not Obama or Romney.

  10. Sam

    Find Phil Gramm, beat him to a pulp, and when he’s peeing into a jug, haul him back into the US Congress and denounce him. Get rid of Gramm-Leach-Bliley, with him and his family present, throw him in prison, confiscate his assets, and reinstate Glass-Steagall. Get rid of the secondary derivative products. The more hedge fund managers, bankers, and day traders unemployed, the better. They get 99 weeks of unemployment and then welfare and food stamps. Ban anyone currently in the finance sector from ever working in the finance secton again, anywhere in the world. Solve the correct problem, not the manufactured bullcrap about which politcal party is in the White House.

    Shut down Wall Street. Razor wire, guards with Uzi machine guns, German shepherds. Limit New York State to credit unions only. No Goldman Sachs, JP Morgan Chase, Citibank. No Rothschild family, Bernanke, Geithner, Trilateral Commission, or the rest of the bull. Mandate if you use a credit union in New York City, you have to be in walking distance of it.

    Limit banks to state banks only. If investors need a place to invest their money, they invest in the state they live in and the local community: make them pay tuition at a state university or community college, make them contribute to state unemployment funds. If they had a hand in sending US jobs offshore, confiscate their money; throw them in prison.

    Then we don’t have to worry about who’s President. Solve the problem where the problem really is.

  11. Westcoastliberal

    I’m not very hopeful of any actual resolution to this entire mortgage fraud mess. The fix is in. All those who might have stood up against these bastards have either been paid-off or intimidated to the point of backing down.
    What we’ve experienced here in the U.S. is the biggest heist in the history of the world. They stole our money with the blessings of our “elected” government. The mafia is now running things and until and unless we get off our collective behinds and take physical action nothing in this country will change. It just makes me sick.

  12. f247

    AG Miller basically admitted on a call last week that the banks had the AGs by the throats the entire time b/c the AGs couldn’t police banks at federal level. Maybe that’s BS, maybe not, but if you go back to the original on-again/off-again in spring 2011, this point definitely came up. In any case AGs got what they wanted in the first place, which is a bunch of press releases. Sad and sickening.

    1. LucyLulu

      I say that’s bs. The AG’s can prosecute acts of fraud, perjury, and forgery committed against citizens of their state, with the exception perhaps of what may happen in suits filed in federal courts, e.g. bankruptcies. Miller originally promised criminal prosecutions, then backed off once he was appointed chief negotiator. He’s also had his campaign coffers lined heavily by the banks in the last year. I wouldn’t believe anything Miller said. Not that any of the other AG’s, in the end, worked to protect their citizen’s interests either.

    2. Woodrow Wilson

      State Rights? Property law that predates this country? Like Lucy stated: “BS”.

      Maybe The Citizenry will wake up, maybe they won’t. Until then, those that are not in a drooling induced coma watch, wait, and probably hope this kind of fraud doesn’t happen to them when they’re most vulnerable (i.e. job loss). The rest don’t care, or believe MSM mantra of deadbeats wanting a free house.

      This ends when there are consequences for bankers, lobbyists and polticans. The only way that happens is when Americans wake up, decide if they want to sacrifice everything, and take matters into their own hands.

      Until then, enjoy the Plutocracy.

  13. Aaron Layman

    Has anyone noticed the similarity behind the taglines for the mortgage settlement website and that of MERS?

    MERS: “Processing Loans, Not Paperwork”

    NMS: “Landmark Settlement, Landmark Relief”

  14. James Cole

    Code does not magically become law. “Law” describes the rules enacted by duly-constituted legislatures and judicial interpretation thereof. What you’re describing is prosecutorial and judicial ignorance and laziness–an unfamiliarity with how information systems work and unwillingness to do the detail-oriented work of figuring out who is responsible for information systems that incorporate business rules that run counter to law. The notion that a bank can escape liability for actions simply because that’s how the software works would be laughable if it wasn’t so terribly accurate a description of what’s happening.

    1. LeeAnne

      the system is wedded to securitization of residential real estate; no robo signing, no mass producing the mortgages, no securitizaiton.

  15. Norman

    As long as everyone is piling on here, lets call it for what it is. The so called “greatest generation” kept this country/world from going down the drain, but then spawned the “boomer generation”, who have destroyed everything they get their hands on. Not to shabby, tearing down in such a short timespan, what took others many many years to build. Oh well, such is life. This complacency today, comes from a generation that doesn’t believe in maintaining their country, don’t fight for it, allow idiots, scum bags, thiefs, etc., to call the shots. Perhaps at some point here, preferably sooner than later, we will experience the proverbial “Phonix rising from the ashes”, that’s of course, there is anything left after the idiots loose the nuclear bombs on the world.

  16. LeeAnne

    There’s a lot more in store than nuclear bombs. Some folks talk about something like a thermal type bomb that’s capable of pulverizing other folks like that experienced in the 3 demolitions at the World Trade Center on a perfectly gorgeous Autumn day in Manhattan on September 11th, 2001.

    Of the approximately 3,000 who perished, there were very few bodies. Remember?

    But, come to think of it, there were 2 terrorist passports found on the ground in the wreckage. Amazing how corny these stories are. The trick must be to get the official storry, the one everyone has agreed to, embedded while people are in shock while delaying any investigation that might interfere with the narration.

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