Countrywide settlement pays fraction to investors – Shell Game Continues

EDITOR’S NOTE: The shell game continues. While the media picks up stories about “settlements” giving rise to the presumption that Countrywide Home Loans and Bank of America and the rest of the securitization players committed various violations of statutes, duties, rules and regulations, the main point gets lost. Where is this money going and WHY? What is the tacit or express admission in paying that money and what effect does it have on the average homeowner sitting with a loan whose obligation is being paid in these settlements?

Think about it. If Bank of America, which now owns Countrywide, is paying “fractions” to investors who purchased mortgage bonds then who is it that owns the underlying mortgages and loans? Did Bank of America pay the investors do it under a reservation of rights (subrogation) to enforce the underlying loans? If not, then why are they foreclosing? All evidence is to the contrary. There is no subrogation under these purchases, insurance, credit default swaps or any other contract — not that I ever saw and not that my sources in the industry tell me was ever even contemplated much less executed. The same holds true for all those bonds the Federal Reserve is holding.

If Bank of America is paying “fractions” to investors who purchased mortgage bonds, why was it a fraction? Is it because the value of the bond was much lower than the price paid by the investor? Is it just a convenient settlement? Or is it because the investors have also received funds from other sources?

This is what I am referring to when I address “factual constipation.” How are these payments being allocated? Did the owners of the bonds actually have any definable interest in the underlying mortgage loans? If they did, why are these payments not being allocated to the obligations or payments due under those underlying mortgage loans? If they didn’t, why did they get paid anything? How will we ever know without getting a full accounting from all the parties that claim some stake or ownership interest or receivable interest in me is underlying mortgage loans?

It is black letter law as well as common law dating back centuries that nobody can collect the same debt more than once. If they do collect more than once there is a clear right of action by the borrower to collect the excess payment through a lawsuit for unjust enrichment, breach of contract and other causes of action. Here we have an intentional act designed to collect the same debt multiple times. In my opinion this does not merely indicate the presence of an action for fraud, it clearly shows an interstate pattern of racketeering that at one time in our history had the Department of Justice and the FBI busy putting people in jail.

Only in America where the news has turned into an entertainment blitz used by those with the most power and the most money to get their message across, even if it is a total lie. Somehow many if not most people have the impression that the borrowers and the securitized mortgages executed between 2001 and 2009 are not entitled to the relief that any other debtor is entitled to receive––that is the obligation has been reduced for any reason, the borrowers should get credit and if any party receives money in excess of the net amount due after credits, the creditor becomes the debtor owing money to the former borrower.

The bullet point that is being used to distort the perception of our citizens and policymakers is that these borrowers should not get a  “free house.” Without getting a full accounting from all parties that advanced funds to and from the original investors who purchased mortgage bonds or collateralized debt obligations and related hedge products, there is no way of knowing the amount of the credit which is due to the borrower. Yes, it is possible that the amount received by the various intermediaries in the securitization chain exceeded the original obligation due from the borrower.

In that case, the borrower owes nothing to the originating lender or the successors to that lender. But if there is still a class of investor or institution that can prove a loss resulting from the nonpayment of the obligation by the borrower (as opposed to non-payment from other parties in the securitization chain) then the law allows that party to recover the loss from those that caused it.  That probably includes the borrower, which means that we are not seeking a free house, we are seeking a truthful accounting.

BUT the fact that this obligation theoretically exists does not mean and never did mean under any legal decision in existence that the obligation should be paid to anybody who claims it. By all substantive and procedural law, the obligation is payable to one who proves the obligation and to one who proves it is owed to them and nobody else.

Yet in the view of many judges the challenge by the borrower is viewed as a delay tactic or an attempt to use technical deficiencies to a gain a free house on a lawn that the borrower sought but could not pay.  No doubt this is true in some cases. But in nearly all the cases, armies of salespeople using names like “loan expert” pounded on doors and rang the phones of people who had no thought of borrowing money on homes, in many cases, that were debt-free and had been in the family for generations. Now many of those homes are bank owned property.

The simple question that needs to be posed to anyone who looks at the borrower as anything other than a victim is which is more likely? Did the owners of 20 million homes enter into a conspiracy to defraud the financial system, half society and our taxpayers? Did these people have the sophistication, education, knowledge, experience or training to pull off such a caper? Or is it more likely that the Wall Street titans stepped over the line and instead of increasing liquidity for the benefit of consumers and small businesses, used their position to deplete the resources of unsuspecting citizens, pension funds, financial institutions and governmental units from the top federal levels down to the smallest local geographical areas?

Countrywide settlement pays fraction to investors

By ALAN ZIBEL (AP) – Aug 3, 2010

WASHINGTON — Former shareholders of fallen mortgage giant Countrywide Financial Corp. are in line to recoup a fraction of their investments now that a Los Angeles judge has approved a settlement worth more than $600 million settlement.

The payoff doesn’t come close to compensating for the money lost by investors. But it could prompt more lenders to settle legal disputes at the center of the housing bust.

Bank of America, which bought Countrywide two years ago, agreed to pay $600 million to end a class-action case filed against the company. KPMG, Countrywide’s accounting firm, will pay $24 million.

Several New York pension funds who served as lead plaintiffs alleged that Countrywide hid how risky its business had become during the housing market’s boom years. Calabasas, Calif.-based Countrywide was once the nation’s largest mortgage lender.

The agreement stands to return about 40 cents per share of Countrywide’s common stock, before legal fees and expenses. Consider that the stock peaked at $45 a share in February 2007, before the financial crisis. So an investor who held 100 shares could bank on receiving $40 for an investment that was once worth $4,500.

Shareholders did receive 0.1822 shares of Bank of America’s stock for each share of Countrywide they owned when Bank of America acquired Countrywide. That worked out to about one share for every 5.5 shares of Countrywide stock. Shares of Bank of America closed at $14.34 on Tuesday. So that same 100 shares of Countrywide would be worth about $261 today in Bank of America stock.

Add the $40 from the settlement and those shares are now worth little more than $300.

Lawyers for the pension funds are requesting $56 million, or 4 cents per share, for fees and other costs.

Investors “will be compensated for a significant portion of the legal damages that they suffered as a result of what we believe was a violation of the securities laws,” said Joel Bernstein, a lawyer for the pension funds. “They won’t be compensated for every penny of that.”

Bank of America has been trying to put Countrywide’s legal problems behind it. In June, the Charlotte, N.C.-based company agreed to pay $108 million to settle the Federal Trade Commission’s charges that Countrywide collected outsized fees from about 200,000 borrowers facing foreclosure.

It reached a settlement Monday primarily to keep legal fees from escalating, a bank spokeswoman said.

“Countrywide denies all allegations of wrongdoing and any liability under the federal securities laws,” said Shirley Norton, a spokeswoman for Bank of America. “We agreed to the settlement to avoid the additional expense and uncertainty associated with continued litigation.”

Plaintiffs attorneys have pursed lawsuits against numerous lenders and investment banks in the wake of the housing market’s devastating downturn, and the Countrywide settlement could encourage even more such cases, said Paul Hodgson, a senior research associate at The Corporate Library, an independent corporate governance research firm.

“There are a lot of suits out there waiting to get launched,” Hodgson said. “I think this is the opening of the floodgates.”

Former Countrywide CEO Angelo Mozilo, former President David Sambol, former CFO Eric Sieracki and former board members were named in the litigation but are not contributing to the settlement.

But it does not end their legal problems. More than a year ago the Securities and Exchange Commission brought civil fraud charges against Mozilo and the two other former executives. Mozilo, the most high-profile individual to face charges from the government in the aftermath of the financial crisis, has denied any wrongdoing.

For Countrywide, “This is only a chapter and not the end of the book,” said John Coffee, a securities law professor at Columbia University.

21 Responses

  1. I’ve arrived a bit late to the party. But let’s not focus on that. Let’s embrace that I have arrived.

    To shore up the suggestion that folks need to know more about the nature and quality of our monetary system I say HAZAH!!

    There are a number of sources for that. Griffin’s book is a good one. I also suggest “Pieces of Eight” by Ed Vieirra, if you can lift it.

    A link to a presentation he made to the New York Rotary Club back in 2003:

    A link to the host site for the above, the “Foundation for the Advancement of Monetary Education”

  2. Neil,

    You may wish to look at NBFCs (Non-Bank Financial Company(s) and put this into the context with Deutsche Bank National Trust Company, and RBI (Reserve Bank of India).

    Non-Bank Financial Companies…..Deutsche Bank ( Germany)
    …..huummm operating on our shores! What ability do they have to do so and, under what Circumstance???

  3. Next question: how many tens of billions,or hundreds of billions in mortgage bonds is Gross holding? Through an investment vehicle or a default debt buyer? Or both? He wants the values propped up in order to make more money on homes or mortgages he already owns? Or he wants to make more money in a stabilized (or rising) RE market when he forecloses and sells? Alot of questions- any answers?

  4. It should read more like this:

    “Gross’ suggestion is at odds with the Obama administration’s housing rescue strategy, which has been focused on pretending that the whole thing never happened. “We hope that this problem will quietly go away. It’s really becoming a nuisance. Homeowners need to come to the same conclusion that we at the Treasury have, that we need their properties. And the quieter they go, the better off all we’ll be. There’s no stopping this snowball. There’s no reason to cause a fuss. Just go quietly.” Geithner was heard saying afterwards.

    “Wealth destruction of the masses?” Geithner said, “I’m not worried about that. I’m much more concerned about the destruction of the wealthy! We can’t let that happen at any cost!”

  5. I forgot the link:

  6. This is too much…A Wall streeter telling Geithner that the government needs to act quickly to help struggling homeowners….

    “Influential bond investor Bill Gross dispensed more policy advice than the U.S. Treasury bargained for on Tuesday, calling for a massive program to refinance mortgages at low rates to boost the flagging economy.”


    “Gross’ suggestion is at odds with the Obama administration’s housing rescue strategy (housing rescue strategy?), which has been focused on modifying failing mortgages to lower payments for struggling homeowners. A wholesale Fannie/Freddie refinancing program for those making their payments would be a major shift in policy.”

  7. Sadly the beat goes on… November can not come soon enough… we need to wipe DC clean of all the GS cronies.

  8. Hi Frankie,

    Those little fines are chuckle-feed for them. They spend that on weekend parties. They make 75-million bucks just be changing bank acounts each night.

    They committed Securities Fraud and bankrupted our country and how many have gone to jail…? Even the FBI is a damn DISGRACE because all they’ve done is busted the little people and middle-folks. There is enough dirt already brought out on Countrywide to create another freaking planet. Yet, none of their CEOs have been busted…

    They created a separate computer system EPS to bypass their normal underwriting system (CLUES) and wrote 100s of Billions of dollars worth of bad loans yet NOT A DAMN ONE has been prosecuted – NO ONE! The SEC – FBI – FDIC – HUD – it doesn’t matter – THEY ARE ALL INEPT and INCOMPETENT or just don’t get a rats-ass about AMERICA.

    Bernie Madoff rips off 50-billion from rich folks and he’s in jail – the people are still without but they did happen to rewrite laws to help get those folks some extra money…

    Countrywide, BofA, Citi, Lehmann, Wells, Goldmann, Chase, etc RIP off us “average-folk” for TRILLIONS and bankrupt the damn country and they get BAILED OUT – SEVERAL TIMES… where’s the crack-pipe – surely I missed it last time it was passed around… WHAT THE HELL – and NOT any of these lying theives are prosecuted…?

    I think its time to start WATERBOARDING these lenders & foreclosure mills… Let’s strip them down naked – let them & their families go into Saddam’s acid chamber that dripped Nitric Acid from the ceiling which burns the skin off in giant blisters and is beyond painful… THAT IS WHAT THESE LYING THEIVES DESERVE… 75-million dollar fine – how about watching their kids go through wood-chipper – oh, I bet that would give them a little pause next time they jump in their private jet…

    Sorry to sound gross – but their day is coming and it will be a GLORIOUS DAY for this country. They KNEW what they did when they did it – they knew the consequences to you & me and everyone else and decided to do it anyway. Now they can pay the reaper and I hear he is PISSED…

    This country will rise to the occassion and these people will be rooted out & dealt with…

    Keep the Power Dry…

  9. The banker’s cozy relationship with the SEC is starting to show cracks, as even the courts are starting to call them at their game of deceit. I hope this is the start of a nasty relationship.

    A federal judge refused Monday to accept a $75 million settlement between the Securities and Exchange Commission and Citigroup, marking the second time this year that a judge has questioned whether the agency had exacted the proper sanction from a major bank.

    During a hearing on the settlement, Judge Ellen S. Huvelle of the U.S. District Court for the District of Columbia raised questions about the SEC’s investigation into Citigroup and how it decided on the size of the penalty and on the individual executives who also face sanctions, according to lawyers who were present. She asked why company shareholders must ultimately bear the price of the sanction, and why the agency charged only two executives with wrongdoing when more senior executives were involved.


    Last year, a federal judge in New York pilloried the SEC over its settlement with Bank of America of charges that the bank failed to disclose mounting losses and plans to pay billions of dollars in bonuses to employees.

    In rejecting the SEC’s initial $33 million Bank of America settlement, U.S. District Judge Jed S. Rakoff of the Southern District of New York was incredulous about the agreement, saying it suggested “a rather cynical relationship between the parties” in which the SEC would get to say it was penalizing a big bank and Bank of America could avoid a protracted fight with one of its regulators.

  10. The game has been the same for quite-a-few years… Keep the slogans limited to bumper-sticker wisdom and the minions fall in line automatically. When all-else fails break-out the sniper-rifles of character-assassination. If they cannot overcome by common-sense, logic, facts, or truth, discredit the messenger. If discredit does not work – destroy them at all costs – character assassination and/or dstroy their families.

    The game is played to win – period.

    Liberal-Conservative – religious – nonreligious – prolife – prochoice – it does not matter who anyone thinks they are – they’ve been played – profiled – demographically sized – labeled and fed a line of bs customized to get “the” response “THEY” want from a specific group… Sounds crazy to conspircy-like but it is very real and much uglier than folks ever want to admit.

    The great depression was nasty with unemployment banging 25% but in the cities it was 40, 50, & 70%… back then selling apples for a nickel to survive was acceptable. Today, that person would be shot & killed and yesterday’s news… 40-50% unemployment in cities these days means the suburbs become prime target picking grounds. Kind-a makes Mad-Max look like its not too distant future.

    Another chunk of money for the banksters by the administration. Can someone please change the brand of DOPE those idiots are smoking… Dumb & Dumber – didn’t they see the damn movie… gee – can’t wait for Obamacare to finally start – maybe by then we can start a Mortgage Borrowers Union or heck Unemployment Union…


  11. 2 Barry… read it about 6 years ago… it taught my family to keep things close to the vest… which in the end as we see day after day really did not matter … as Frankielee points out no matter how far away from this chaos you kept yourself this tsunami was designed to take under everyone and extract every last dime.

    But that is why this fight is so important… the current regime and their supporter’s would like us all to devour each other under the guise of “Moral Hazard”… have my own opinions on all of this but refuse to be used and abused ever again for yet another “collective agenda”.

  12. […] This post was mentioned on Twitter by Deborah Dugger, Courtney Lawson. Courtney Lawson said: EDITOR’S NOTE: The shell game continues. While the media picks up stories about “settlements” giving rise to the … […]

  13. I wanted to support Robert Ponte’s view below.

    I am almost done reading “The Creature From Jekyll Island” by Edward Griffin

    The book is so comprehensive about the history of corruption of fiat money and bankers, that none of this foreclosure fraud is surprising given the world history outlined in the book.

    It’s given me a lot of comfort in knowing that all of us here are not paranoid wackos. Also, I think many with conservative and liberal opinions are actually closer to agreement on underlying values, and have been encouraged into polarization by the media as a distraction from the biggest crimes in history by the financial elites. Great read.

  14. I still want to know what they are gonna do with all these houses

  15. David, I couldn’t agree with you more. I am so fed up with comments underneath articles describing this meltdown that still after all this time paint the picture of “buying more than they could afford”, or the ATM scenario. These attitudes were and still are fostered by the banks to this day.

    Such as just a few months ago when the VP of JP Morgan Chase testifying before the Congressional Finance Services committee said that the banks thought that principal write downs would represent a “moral hazard, and shouldn’t be considered.”

    I get a little crazy and start thinking seriously about anarchy when I hear things like that coming from a banker. But the fact that it’s not met with severe rebuttal from our legislature puts me over the edge. Trillions of taxpayer dollars didn’t represent any moral hazard at all on the part of Wall street, but keeping Americans in their distressed and underwater homes is. Go figure.

  16. One of the grossly neglected aspects of Investor Lawsuits – especially the 600-mil case – is that it screams of hypocrisy & contradiction…

    The investors and all their due-diligence could not see through the lies & schemes of Countrywide – but magically the moms & dads raising a family working 2-3 jobs did… therefore it is their fault as the borrowers and they should lose their home. Somehow these moms & dads projected such a positive desire to borrower more than they could repay – it simply overwhelmed the good hearts of Countrywide’s loan originators…

    It begs the question – were the investors complacent or accomplices…? Are these lawsuits the products of backroom “parachutes” – just in case something went wrong…?

    Strange isn’t it – these hi-fluting due-diligent investors couldn’t figure out how risky their investments were but those dumbass – greedy borrowers knew all along…

    Keep the Powder Dry…

  17. Until we all get a better understanding of the process of money creation, most of our efforts will not mean much. Sure we are helping a few homeowners get “free house”, but until we all learn about the federal reserve etc, we are doomed to their payoffs to countywide again giving an appearance of somehow a wrong has been righted. NOT. Want to learn to educate our congress and others? robertponte dot com.

  18. Am I off-base or was there a finding of fraud with the origination of Countrywide loans? I vaguely remember that there was a document that spelled out the fraud committed by Countrywide.

    If so, would that not void all loans originated by Countrywide? Why is BoA allowed to foreclose on any loan originated by Countrywide?

  19. Well, an individual may also raise and unjust enrichment claim. This could prove whether anything is owed on the note. I was not in foreclosure when I filed suit against BOA and others–I initially sued over the wrongfl handling of my loan mod. As a former trial attorney, the more I got into the research, the more I realized the issues that were prsent. I tried settling up an escrow account into which my payments would be put–not a word form the defendants accepting this–in fact they refused to take payments from me and actually cancelled the payments I made by check! Then they denied the loan mod, whose requirements I had already met with my prior loan processor, on the grounds I refused financial help from them–this although I had continuously made the payments under the loan mod for 7 months at this point in time! I’ve added a quiet title action after looking at the docs on file at the courthouse, and fraud claims and breach of lender liability claims as well as a TRO claim. Interesting enough the lawyers for BOA have said they are not going to foreclose! Why I don’t know but I don’t trust them–they are currently trying to remove to Fed Ct although I caught them in several lies and that remand motion is pending. I don’t know what would happen with an unjust enrichment claim–it certainly would be interesting discovery. I am concerned that I will win the QT action and end up with an unsecured note that some unknown person will come forward to try to enforce. Without a settlement agreement indemnifying me against someone coming forward to collect on the note from those that are currently in the lawsuit (even thought I am publishing against that possibiiity in legal journals) I wonder what will happen. So maybe I will do this–it may help. I do think there is fraud on the part of MERS that is not being explored in these lawsuits. I also think my former loan servicer WILSHIRE was collecting for a trust which is now defunct, which I am investigating. That trust had CITI as a trustee but when I write the address where that trustee and trust was located, I get no answer. It may go on for awhile but what the hell. Perhaps it will get resolved. But don’t let any judge tell me I am looking for something for free–I am not, I just want answers and I deserve those answers not incredible garbage.;

  20. None of the investor lawsuits deduct monetary “foreclosure recovery” from the damages claimed by the lawsuit. That is because these investors do not recover on foreclosures.

Contribute to the discussion!

%d bloggers like this: