Blatant Violation of Mortgage Settlement Elicits Predictable Limp-Wristed Response From Mortgage Monitor

Gretchen Morgenson has a good piece up today which again proves that no matter how bad you think the mortgage settlement is, it’s worse.

Readers may recall that one of the dubious features of the settlement was that banks could accumulate credit for activities other than mortgage modifications of loans they owned, which meant that anything other than the actual hard dollars paid in the settlement, net of fines the officialdom chose to forgive, was the only believable number, since the rest could and likely would be gamed in various ways. The cash portion of the settlement was just shy of $6 billion, with fines owed to the Treasury and Fed clocking in at over $1 billion, making the only sure costs inflicted on the five biggest servicers for years of abuses of borrowers and making a mess of title an average of under $1 billion each.

One of the ways banks can earn credits toward the remainder of the balance is by extinguishing first and second liens. But the banks look to be taking debts that were uncollectable, from a legal perspective, and claiming credit nevertheless. The most egregious version is the one fingered by Morgenson, that of debts that were already erased in bankruptcy. Morgenson has unearthed multiple instances where the banks have sent out cheery letters saying they are wiping out consumers’ debts, when those debts in fact are long gone. And to add injury to insult, these servicers are also reporting these phony extinguishments of debt to the IRS as if they were actual debt forgiveness, so the consumers will have an uphill battle proving that the banks have done them a dirty by misreporting for fun and profit.

When Morgenson gave two servicers who had issued these letters the opportunity to explain themselves, Chase and Bank of America tried claiming that the banks still had liens against the properties in question, which was in essence contending the letters were valid, but written imprecisely. However, in the Bank of America case, two cases Morgenson discussed, the lien had in fact been discharged. Note that you can’t extinguish liens in a Chapter 7 bankruptcy, but you can in many jurisdictions in a Chapter 13. The response by the bank to Morgenson strongly suggests that BofA is treating all bankruptcies as the same when they most assuredly aren’t, and that may well be true of other servicers. And even if BofA is the only miscreant, it is required to provide far and away the largest amount of relief. Oh, and on top of that, the update provided by monitor Joseph Smith, meant to put a PR happy face on progress to date, revealed that through June, the bank was behind on meeting some targets.

What is troubling but predictable are the official responses, first that of Bank of America in claiming that there was no fundamental problem when there is, and then of Smith’s empty reassurance. Per Morgenson:

So I asked Joseph A. Smith Jr., a former banking regulator in North Carolina who is monitoring the settlement, how he planned to vet the banks’ claims of relief provided and credit earned. For example, how will he ensure that institutions do not receive credit for releasing liens that have been eliminated?

“We will review compliance with this requirement as we will with all of the consumer relief requirements,” Mr. Smith said, “through review of the corporate records relating to such transactions.”

I don’t know if readers appreciate why this approach assures this sort of error at best, chicanery at worst, won’t be unearthed. We’ve railed against past enforcement theater, starting with the whitewash an eight week multi-agency foreclosure review in November 2010. One of their common characteristics is they look only at bank records. There is no effort made to validate externally whether those records are correct. Yet as anyone who has had even remote contact with this topic knows full well, one of the underlying issues is that the servicer records are dreadful. And Smith has just admitted that his lame enforcement effort will not go to the trouble of even sampling borrowers who’ve gotten discharge related to past bankruptcies to see if the bank’s records comport with what is on file with the courts.

But as we’ve said in the past, Smith is a bank regulator from North Carolina, which is an oxymoron given how friendly that state is to financial services firms. So the settlement is just playing out according to script.

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  1. Guy Fawkes Lives

    I sent my AG an email, along with an attachment, showing him that JPMorgan Chase filed an FALSE and ROBOSIGNED declaration to start the foreclosure on my home. He told me to call the Office of Mortgage Settlement Oversight….and when I called this office, they told me that they didn’t monitor individual complaints of non-compliance. I said, “how can you NOT monitor individual complaints of non-compliance?” To which she said, “there are agencies in every state that provide the homeowner assistance. And in Washington State, that would be your Attorney General.” I told her that my Attorney General told me to call HER office. Her answer was the same, “we don’t offer monitoring of individual complaints.”

    1. Ms G

      Certified Letter Return Receipt Requested to both the AG (specific person you dealt with plus AG herself) and the Mortgage Reg. entity (specific person y ou dealt with plus whoever is General Counsel of same agency), and your Senator. Then also call whatever “Shame on You” program airs in your area, see if they do a piece at prime time. Then also send copy of letter and materials to the one remaining local journalist that gives a damn (if such person exists). I know, it’s tedious. But worth a try.

    2. run75441


      Not to quibble with Ms G’s explanation, I would call that a Green Card Receipt for Domestic Mail.

      The Green Card is attached to the envelope and the recipient signs or stamps the Green Card which becomes a signed proof of delivery. If the Green Card comes back blank, a complaint can be made with the US Postmaster, which I have done also on one mortgage company a long time ago.They will sign it the next time.

      It does stand up in court,

    3. enouf

      Also not to quibble with above suggestions, it’s called Registered Mail, IINM – requires signature as others mentioned


    4. Nathanael

      When you do go to the local press, one thing to say is “A grand jury oughtta investigate this!”

      As far as I can tell, attracting the attention of a grand jury is the ONLY way in the corrupt American legal system to bypass the corrupt, sold-out attorney generals and district attorneys.

      (If you can get the attention of your local DA, that would be lovely too. Or if you can elect someone on a platform of proseucting the banksters.)

  2. Susan the other

    So what if JPMChase and Banko Amerika’s forgiven mortgages are nestled securely in all the zillions of mortgages in the MBSs being sold to the Fed. Who even owns this stuff? All the titles are so terminally screwed. I think the Fed has a plan to buy up all the MBS in the country, store them in an old warehouse beyond the reach of a fire hydrant and set the whole thing on fire.

    1. psychohistorian

      But not until they have all their derivative positions set so the result has them own all of the world and not just most of it.

    2. Cindy H.

      Susan, ownership is 9/10th of the law.

      Nothing has changed, the Fascist-Fed will own it all.

      No bailout left behind, straight out of yours.

      1. Nathanael

        Possession remains 9/10 of the law.

        Never leave, threaten anyone who tries to evict you, have a large posse to back you up, and after enough years you own the property….

  3. Joe Blow

    There seems to be a problem with the Naked Capitalism website right now. When I attempt to get a list of the most recent posts by refreshing the page, nothing happens. The has been a problem for the last 3 or 4 days. I have to enter the site via the archives to get a list of the most recent posts.

    Also, the copyright notice at the bottom of the page claims no copyright for 2012. 2011 is the last year for which copyright is claimed.

    1. Hugh

      I’ve been having similar problems for a few days now. I get the page as of the last time I was on it. However, if I allow it to load, and then refresh it, something more current shows up.

    2. Lambert Strether

      Ta. Sounds like a caching issue on the server side, given that you cleared your own browser. Sometimes these things take awhile to work themselves out, because the Intertubes flow in mysterious ways, but I’ve forward this on to the tech guys.

      1. YankeeFrank


        I am using osx10.6.8 and chrome browser and I’ve seen this behavior twice in the last couple days. It appears the default cacheing behavior has changed so that when we return to the front page of NC we get a cached old version that we’ve previously seen, and once we reload we get the latest version. I would say its not correct behavior for a blog because the front page is so often updated that cacheing of it is inappropriate.


        1. Dan

          I am using Chrome (latest) and see the same problem requiring a manual ‘reload’ (from the right-click menu, not the browser re-cycle thingy at the top).

  4. Richard


    Nice post, although I get the strong sense that you dislike taking a ‘victory lap’ for predicting before the fact that the banks would game the settlement.

  5. Hugh

    I can’t help but see this as part of the Obama-Geithner plan to allow banks to lie and steal their way back to solvency.

  6. Enslavedlikeyou

    Our children and their children’s children will hate our generation for not taking stronger action against this criminal atrocity. They will piss on our graves for not taking to the streets and fighting harder for the freedoms secured by the blood, sweat and sacrifice of women and men that showed us the way.

    We found it easier to look the other way and pooh pooh our neighbors and family members when they cried out in pain from being raped again and again by the corrupt legal profession and our do nothing justice system.

    WE’ll deserve their scorn as we continue following and doing exactly what the ass in front of us is doing. WE’ll collectively watch, condon, and remain silent while the Sanduskys of Wall Street once again sodomize everyone of us in the shower while their lawyers stand by passively holding the soap.

    What a horrible legacy to leave behind. I am embarrassed and sincerely apologize that WE did nothing.

    1. JCC

      Jesse says it best:

      “To those who say to hell with it, to hell with thinking, to hell with complexity, to hell with others, I say, be careful of the madness which you seek to unleash, because it will come back to consume you and your children, as it has done so many times before, and will do so inevitably again.

      This is what I believe is happening now based on a careful reading of history.

      This is not a prediction. This is a warning for a generation that is being prepared to accept the unthinkable on a much wider scale than they might imagine in their worst nightmares: torture, murder, ethnic cleansing, and repression. And what is most frightening of all is that they think they are immune to it, because they are so different, so special, so exceptional. And so they become willfully blind, and in their blindness, may become beasts.”

      1. Nathanael

        The thing is, the younger generation may initially welcome the bloodshed — the French and Russian Revolutions were *popular*.

        Once institutions have destroyed their own credibility, most people actually like to see the people who were part of those institutions killed, tortured and maimed.

        Better to avoid this scenario, but I think it’s too late.

  7. Conscience of a Conservative

    No surprise here, as the current resonses from Smith, Geithner and A.G. Schneiderman were outlined previously and what we can expect from the settlement well telegraphed in advance, and well the banks are the banks, and if they are being told writing or not being discouraged from writing down worthless debt as a way of honoring their committments who can be surprise by thir action either.

    That this is occuring under a Democratic administration should destroy the myth that somehow only Republicans are to blame. Seems there are no shortage of enablers.

    1. Conscience of a Conservative

      What’s shocking Susan, is that people expected otherwise. My take is that the guys who acted as a co-between in the negotitiations between Treasury and the A.G’s and the banks were friends of the banks or bankers not employed on the sell side at the time. It would not surprise me if there was a wink and a nod on how the terms could be met prior to everyone signing on. We already know that Geithner and Breuer are more concerned about the health of the banks than about rule of law, and we know that Robert Rubin’s presence is still felt on Capital Hill. When so many of the people caling the shots were the very guys who helped create the crisis it’s very much in their interest to help paper over the problems.

  8. ChrisPacific

    I really wish Morgenson has asked the obvious follow-up question about what happened if the corporate records were falsified or incorrect. It seems like a pertinent question given that this was the entire reason for the settlement in the first place.

  9. dimchester

    There are forensic examinations underway exposing most of these shenanigans and they are being undertaken in each of the fifty states. All the mortgages have been taxpayer paid at 100 cents on the dollar so this is all diversionary crap.

    1. Reader Lisa N.

      Yves, great article and you did call it in advance.
      Dimchester, please share more information about the forensic examinations you referenced.

    2. Yves Smith Post author

      Please, don’t make things up.

      There are no “forensic examinations” taking place. As we have discussed in previous posts in considerable detail, the servicers hire firms (subject to monitor approval for conflicts of interest, but we’ve separately also reported that conflicted firms have been hired) to prepare reports of various types as specifice in the mortgage settlement agreement.

      There is NOTHING in the agreement that calls for validation against court records. And the only time there is a effort of sorts to get information is if borrowers who were foreclosed on in a specified time frame (I’m not searching my archives because the precise dates are not relevant for this discussion) request a foreclosure review. We have ALSO described in detail how those reviews are a sham.

      So the onus is on you to point to specific language in one of the mortgage settlements agreements (they are all highly parallel) that calls for these “forensic exams” you are talking about. To quote Morgenson, I’m not holding my breath.

      1. Nathanael

        In NY, the rules in the court system (i.e. making the banks *follow* the rules) have halted most of the fraudulent foreclosures, no AG action necessarily. It seems that something similar is happening in Massachusetts.

        This is sadly not true in most of the country.

  10. MichaelC

    My working hypothesis is that none of these programs are designed to help individual borrowers. Full stop. Therefore the individual hardship stories should be interpreted as evidence of the collateral damage resulting from the primary goals of the program. By examining the collateral damage we may be able to understand ,and rebut, the gov’ts policy responses more effectively.

    This may be a bit of a stretch,(my accountant self demands I ask) but I wonder if the banks are able to use the settlement credits to offset reportable losses they’ve so far failed to recognize in their financial statements. If so, the use of the credits in their financial statements goes a long way toward extricating the banks from the uncomfortable requirement to recognize and absorb the losses on these loans.

    The failure/refusal to write down second liens has been a big obstacle to getting the banks to modify the underlying mortgages, since they’d have to take a hit to earnings. Yves has reported ,IIRC, that’s something on the order of 400B in second liens. If the gov’t credits can be used by the banks as offsetting ‘earnings’ for financial reporting purposes,then no reader of the financial statements would be the wiser if a good chunk of the second lien write-offs were cleverly offset with gov’t ‘credits’ which could count as income. The second lien balances would disappear if the gov’t credits can be treated as hard dollar reimbursements (thus income to the bank) from the gov’t in the bank’s financial reports. This would amount to another massive (and unrecognized govt bailout of the banks second liens). It’s no secret that the bank’s (and their bondholders) have refused to take these losses, and have held the govt (and MBS investors and individual homeowner’s )hostage to their refusal to bear the losses. They don’t really care if bankruptcy protected borrower’s whine. Why should they? Those borrowers are already broke, so the legal threats to the banks are minimal.

    It sounds odd, I know, but the idea of the gov’t granting ‘credit’ for compliance with a settlement without a hard dollar economic exchange between the gov’t and the penalized also sounds bizarre. And since those tedious accountants have to square the books to reconcile the gov’ts assistance with the banks ‘forgiveness’ these customer’s new legal woes indicate that the banks are benefiting more than we realize, at the expense of taxpayers and bankrupt borrowers.

    The fact that the banks appear to be acting as if they are ‘forgiving’, liens which have already been discharged in bankruptcy, suggests there is a disconnect between the banks accounting records and reality. (i.e they may still be carrying the discharged liens at full value in their financial statements.)

    Good for Mogenson for highlighting the collateral damage. I’d like her to do a followup investigation that asks the simple question:

    Are the banks that are party to the Settlement able to use the credits to offset reportable losses in their public financial statement disclosures?

    If so,this should be a front page disclosure, If not, she should explore how the credits are disclosed to the public, and relentlessnessly broadcast how credits are earned by the banks on the backs of bankrupted borrowers.

  11. Richard Davet

    Published: September 29, 2012

    “For example, how will he ensure that institutions
    do not receive credit for releasing liens that have
    been eliminated?”

    Davet says there is larger elephant in the room …..
    gse as mortgagee demands of mischievous servicers
    to repurchase at par mortgagor’s mortgage. Despite
    satisfaction of mortgage, errant servicer proceeds
    with foreclosure despite satisfaction of mortgage
    as debt is extinguished.

  12. Norcal_Steve

    I’m not gay, and I’m not that stuck into the PC, but I do dislike gender-role stereotyping. Yves, I’ve told you this before but ‘limp-wristed’ means ‘like a woman (i.e. like a queer)’. Guess what – queers are not weak! If you wiki ‘limp-wristed’ you will be redirected to ‘effeminate’ (see below). Can you please find a better metaphor that is not a gay slur?

    wiki redirect from ‘limp-wristed’:

    Effeminacy describes traits in a human male, that are more often associated with traditional feminine nature, behaviour, mannerisms, style or gender roles rather than masculine nature, behaviour, mannerisms, style or roles.
    It is a term frequently applied to womanly behavior, demeanor, style and appearance displayed by a male, typically used implying criticism or ridicule of this behaviour (as opposed to, for example, merely describing a male as feminine, which is non-judgmental). The term effeminate is most often used by people who subscribe to the conventional view that males should conform to traditional masculine traits and behaviours. Generally, the description is applied to individuals, but may be used to describe entire societies as an inflammatory allegation. Although in the Western tradition, as described below, effeminacy has often been considered a vice, indicative of other negative character traits and often involving a pejorative insinuation of homosexual tendencies, in other societies, feminine males may be considered a distinct human gender (third gender), and may have a special social function, as is the case of Two-Spirits in some Native American groups. Furthermore, in contemporary culture, effeminacy has come to be seen by some to be simply one characteristic or trait which might be a part of a particular person’s “gender role”, and in this sense would not be considered a vice or indicative of any other characteristics. An effeminate male is similar to a fop or a dandy, though these tend to be archaic identities that are taken on by the individual rather than insulting labels.

    1. JCC

      No offense, and not to start a side argument, but until some nameless individual on the “wiki” (I assume you are referring to wikipedia, although there are thousands of other wikis on the Internet and wikipedia was far from being the first), decided to formally define the term “limp-wristed”, I and, I’m guessing, many others have never bothered to look up wikipedia’s exact definition of the term. Colloquially I think most would agree that it generally means weak and is not, depending on the context of course, an intentional gender-biased slur.

  13. ama125

    BOA is also sending out these forgiveness of second lien letters to borrowers who have already lost their homes to foreclosure…so much for this settlement touting to keep people in their homes. That may hold true for some but certainly not all. I suppose that it is a good thing for those borrowers who live in states where the bank can still pursue them for deficiency after foreclosure but certainly not the landmark relief the press has painted this settlement as being.

  14. ama125

    Also wanted to mention that borrowers are receiving forgiveness on HAMP-modified loans to forgive the non-interest bearing forbearance amounts (balloon payment at loan maturity).

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