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.
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:
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.)
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 the … following 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?