Category Archives: Banking industry

Is the Mortgage Settlement Deal Starting to Unravel? (Updated)

The Administration had thrown its weight behind getting the mortgage settlement deal done shortly after the State of the Union address. Eric Schneiderman joining a Federal task force that seemed unlikely to accomplish much, given its staffing and the history of Federal investigations, seemed to secure it getting done, as Schneiderman, the de facto leader of the opposition, moved first into a neutral stance and then rejoined the talks over the weekend.

The deadline had been first set as February 6, then moved to the 3rd, then late last week moved back to its original date. There was no announcement of a pact today, which in and of itself would not necessarily mean that things might be going pear-shaped. After all, the participants could be wrangling over fine points.

A fresh Reuters report indicates that the Administration messaging and cheerleading (witness the Shaun Donovan interview reported by Dave Dayen and Shahien Nasiripour) may have been ahead of events.

More on the Role of Second Liens and the Mortgage Settlement as Stealth Bank Bailout

Readers who missed the post over the weekend entitled “Schneiderman MERS Suit and HUD’s Donovan Remarks Confirm That Mortgage “Settlement” is a Stealth Bank Bailout” are advised to read it first, since it provides important background and context for this piece, which clarifies some issues I skipped over.

Quelle Surprise! New York and California Attorneys General Look Ready to Sign on to Mortgage Settlement

The New York Times reports that two attorneys general of states regarded as important for the Obama Administration to declare the mortgage settlement a success have rejoined the negotiations, which says they are likely to sign the pact.

Kamala Harris, the California AG, was widely seen as “political” and therefore was not seen as a solid holdout. I remain disappointed by the conduct of our attorney general Eric Schneiderman, who is also now participating in the talks. His decision to join a Federal task force undermined the opposition to the settlement and looks to have cleared the way for the Administration to craft a win on this deal (note it is still possible it will not get done, but the odds were low as of last week and appear to be sinking further).

Schneiderman MERS Suit and HUD’s Donovan Remarks Confirm That Mortgage “Settlement” is a Stealth Bank Bailout

In case you had any doubts about what the mortgage settlement was really about and why banks that were so keenly opposed to it are now willing to go ahead, the news of the last two days should settle any doubts.

As we had indicated earlier, one of the many leaks about the settlement showed that there had been a major shift its parameters. Of the $25 billion that has been bandied about as a settlement total for the biggest banks, comparatively little (less than $5 billion) is in cash. The rest comes in the form of credits for principal modifications of mortgages.

Let me stress: this is a huge bailout for the banks. The settlement amounts to a transfer from retirement accounts (pension funds, 401 (k)s) and insurers to the banks. And without this subsidy, the biggest banks would be in serious trouble

Fannie Ignored 2006 Warnings About Widespread Mortgage Abuses (Updated)

Gretchen Morgenson of the New York Times reports on an ugly bit of mortgage market history: that Fannie Mae was told in 2006 to address the derelict behavior of its servicers and foreclosure mills yet chose to do pretty much nothing about it.

Schneiderman Files Civil Fraud Lawsuit Against Three Major Banks for Use of MERS (Updated)

New York filed a lawsuit against various units of JP Morgan, Bank of America, Wells, MERSCORP and MERS over their use of MERS in foreclosures. This civil suit alleges that the use of MERS has “resulted in a wide range of deceptive and illegal practices,” most importantly, over 13,000 foreclosures in MERS name where MERS “often” lacked standing to foreclose. The suit claims that an undetermined number of foreclosures that were not made in the name of MERS were also deceptive by virtue of MERS “certifying officers” making improper assignments prior to the foreclosure. The suit includes the use of robosigners who failed to review the review the underlying records as required, and served to disguise gaps in the chain of title.

Investors (and Others) Realizing Their Ox is About to be Gored in Mortgage Settlement

Investors have been remarkably passive as banks and servicers have taken advantage of them. We’ve heard numerous reports of servicer fee abuses that amount to stealing from investors (remember, if you overcharge a stressed borrower and that borrower loses his home, the money in the end comes out of pension funds and 401 (k)s when the excessive fees are deducted from the proceeds of the sale of the home). Investors can even see suspicious patterns in investor reports. We’ve also pointed out that they are guaranteed even more pain, since $175 billion of losses that have already recorded on loans in MBS pools have not yet been allocated to the related bonds.

Romney’s Wife Had $3 Million in Secret Swiss Bank Account Through 2010; Not Reported in Federal Disclosure Forms

Remember how peculiar it was that presidential candidate Mitt Romney refused to release his tax returns? That was predictably a non-starter. Most voters probably assume the reason he resisted was to avoid the controversy over his strikingly low tax rate.

Another factor appears to have played into this decision. The release of the tax returns shows Romney neglected to disclose some required financial information in his personal disclosure form filed with the Office of Government Ethics last year. His team apparently timed the release of his tax records with the hope that State of the Union hooplah would dominate news coverage and result in his finances getting less attention than they might otherwise. And that appears to been correct. His failure to divulge information about 23 investments, and more important his use of secret Swiss bank accounts, has been given a free pass. As Citizens for Responsibility and Ethics in Washington director Melanie Sloan observed, “Mr. Romney says the errors are minor, but then again he also claims earning $374,000 in speaking fees isn’t much money.”

Quelle Surprise! SEC Fails to Sanction Big Banks for Fraud

Ed Wyatt of the New York Times has released an important story tonight on how the SEC goes easy on big banks by giving them exemptions to laws meant to stop securities fraud. This report stands in stark contrast to a Reuters story which repeats the favorite Administration mantra: it’s really hard to prosecute financial-related cases. It sure is when you don’t chose to use the powers you have.

The gist of the Times piece is that the SEC gives the biggest banks like JP Morgan and Goldman waivers so that they can continue to have ready access to the financial markets without a lot of hassle. The overview:

Michael Olenick: More on ProPublica’s Off Base Charges About Freddie Mac’s Mortgage “Bets”

By Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick

Fallout continues from the ProPublica/NPR story “Freddie Mac Bets Against American Homeowners,” though probably not the sort ProPublica expected.

Many in the blogsphere who work on finance and housing finance issues, including myself and Yves Smith, didn’t find the piece to be convincing. In a rebuttal Yves, who like me is anything but a cheerleader for the GSEs, explained Freddie’s practice is, in reality, only slightly more nefarious than clearing snow from the parking lot. That is, of all the awful decisions Freddie Mac makes, this isn’t one of them.

Yet More Mortgage Settlement Lies: Release Looks Broad, Not Narrow; Other States Screwed to Bribe California to Join

A number of writers, such as Mike Lux, Bob Kuttner, Matt Taibbi, and Justin Krebs, have been willing to convey the Administration message that the current version of the mortgage settlement is a “much tougher deal” and even a pretty good deal, thanks to Schneiderman’s intervention.

It is important to note that any recent improvement in terms has come at the cost of Schneiderman moving from being decidedly against the settlement to being in the “maybe/maybe not” camp as an apparent part of his decision to join an Administration investigation on mortgage abuses. But as we have stressed, the fact that the Obama team is pushing to wrap up the settlement agreement before the probe underway is a very bad sign. How can you settle when you don’t know the full extent of the bad conduct?

In addition, the change in Schneiderman’s posture has undermined the solidarity of the dissenting attorneys general, which is no doubt what Obama hoped to achieve.

While there is every reason to believe there has been some improvement in terms due to the resistance of Schneiderman and other state attorneys general (Beau Biden of Delaware, Martha Coakley of Massachusetts, Catherine Cortez Masto of Nevada, and Kamala Harris of California), the notion that, per Mike Lux, “the settlement release is tight” appears to be patently false.

Quelle Surprise! Feds Dust off Old Rogue Traders CDO Case to Burnish “Tough on Mortgage Crime” Credentials

The powers that be are in the process of seeing how they can burnish their “tough on bank crime” credentials while not ruffling anyone really important. And the case featured in the Wall Street Journal, “U.S. Plans Charges on Bond Fraud,” illustrates the sort of enforcement theater we are likely to see over the coming months.

Wow! Charges! Better yet, criminal charges! Finally the Administration is getting tough on crime.

Right. It’s tough on crime against banks.

Why is the Normally Astute Taibbi Sounding Like a Hopey Dopey Liberal on the Mortgage Settlement?

I hate taking issue with Matt Taibbi. I’m a huge fan of his writing and think he has done more to cause the big bad banks discomfort than any single writer.

But even someone as skilled as Taibbi occasionally has the writing equivalent of a bad hair day. And his post, “A Victory for the Public on Foreclosures?” is an example. And his misreading matters precisely because he has so much cred with the public that is unhappy with Big Finance.

Taibbi has taken up cheerleading the Schneiderman involvement in a Federal investigation committee as major progress and also amplified the messaging that the current version of the release in the mortgage settlement deal (which by the way is still more of a mystery than it ought to be) is a good deal. As we will discuss in due course, even a narrow deal around robosigning is in fact NOT a good deal.

ProPublica’s Off Base Charges About Freddie Mac’s Mortgage “Bets”

A new ProPublica story, “Freddie Mac Betting Against Struggling Homeowners,” treats the fact that Freddie Mac retains the riskiest tranche of its mortgage bond offering, known as inverse floaters, as heinous and evidence of scheming against suffering borrowers.

The storyline in this piece is neat, plausible, and utterly wrong. And my e-mail traffic indicates that people who are reasonably finance savvy but don’t know the mortgage bond space have bought the uninformed and conspiratorial ProPublica thesis hook, line, and sinker.

So Why Hasn’t SEC Enforcement Chief Robert Khuzami Resigned? SEC Only Now Investigating CDOs Created on His Watch at Deutsche Bank

I’d heard from German speaking readers about the Der Spiegel report of an SEC investigation in its German edition over the weekend and they’ve now released it in their English language version.

Der Spiegel is careful about its sourcing, so readers should take this account seriously.