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Officials Disagree on Penalties for Mortgage Mess

: If Osama Bin Laden had engineered the mortgage and ensuing financial crisis doing the exact same things (no difference) that Americans did on Wall Street, what would you say should happen to him?

This act of terrorism should be punished in the same way as justice would demand against Bin Laden. And as long as we take the criminal charges off the table, as they keep saying, the actual remedies and amends to the victims of these heinous acts (resulting in family suicides) will elude us. There is no “fix” to the financial system as long as we keep playing ball with Wall Street as though the lost decade of 2000-2009 never happened. They are still playing the same games and who can blame them? No consequences to the perpetrators. As things tend to escalate it is challenging to think of how things could get worse — but we are going to find out as long as we remain uncertain about what to do with fraud when it occurs on a large scale.



Even as state attorneys general and regulators in Washington approach the end of their investigation into abuses by the nation’s biggest mortgage companies, deep disputes are emerging over how much to punish the banks as well as exactly who should benefit from a settlement.

The newly created Consumer Financial Protection Bureau is pushing for $20 billion or more in penalties, backed up by the attorneys general and the Federal Deposit Insurance Corporation.

But other regulators, including the Office of the Comptroller of the Currency, which oversees national banks, and the Federal Reserve, do not favor such a large fine, contending a small number of people were the victims of flawed foreclosure procedures.

As the negotiations grind on, there are signs that the banks still have not come to grips with the problems plaguing the foreclosure process. These problems burst into view last fall with accounts of so-called robo-signers processing thousands of foreclosures at a time without the required legal safeguards. The resulting furor prompted the attorneys general and other government officials to step in. Some banks suspended foreclosures to review their processes before resuming.

On Monday, though, HSBC disclosed that it had suspended foreclosures after regulators found “deficiencies” in its handling of them. These included problems with court affidavits, notarization, mortgage documentation and oversight of law firms, a spokesman for the lender, which is based in London, said. HSBC declined to say how many homeowners were affected.

“The events of the fall really uncovered and provided a degree of focus on fundamental problems in the way banks service and foreclose on mortgages,” said Paul Leonard of the Center for Responsible Lending. “Regulators have a great opportunity to come up with some serious fixes.”

Assuming, that is, they can agree. As difficult as it is to decide on a figure for any broad settlement, the question of what to do with the money could ultimately prove more vexing.

If only victims of problems at the servicers are helped in a settlement, that would cover a small portion of homeowners who are in default and even fewer of those whose homes are valued at less than they owe.

All the regulators declined to comment publicly on just how close they are to wrapping up a global settlement that would be presented to the banks. But signs of the differences have emerged in public testimony as well as in private conversations with government officials.

The acting comptroller of the currency, John Walsh, testified last week that while there were widespread problems with documentation and oversight of law firms and other crucial links in the foreclosure chain, only a “small number of foreclosure sales should not have proceeded.”

Despite skepticism on the part of the comptroller’s office, other regulators would like a broader plan to help pay for modifications of mortgages that are delinquent or in default, even if homeowners cannot point to a specific example of wrongdoing on the part of servicers. In other cases, the money might be used to help mortgage holders whose loan principal exceeds the home’s current value.

What’s more, the Obama administration, as well as the F.D.I.C., sees any broad settlement with the servicers as an opportunity to do more than just fix the foreclosure process. They want to stabilize the housing market, where prices are continuing to decline, and try to help bolster the economic recovery, which is facing newer threats like higher oil prices.

Some two million American homes are in foreclosure, a third of which are vacant. Another two million households are behind on their payments and facing the prospect of foreclosure this year. To make matters worse, roughly a fifth of the nation’s home loans exceed the value of the underlying house, raising the risk that homeowners will simply walk away, further weakening the housing market.

Right now, the Obama administration argues, the housing market is facing the worst of both worlds — a big back-up in foreclosures as procedures are reworked, and a similarly long wait to get a mortgage modification in which the principal or the interest rate of the loan is lowered, easing monthly payments.

Any settlement would include provisions to streamline the modification process, which has proceeded at a snail’s pace at many servicers, frustrating many homeowners. The money from the banks, in turn, would help cover the cost of reducing principal and interest payments, paving the way for more modifications. Advocates argue that would finally get the housing market moving again.

But even if these proposals make it past all the regulators, they face fierce opposition from the banks, which argue that what the administration and the attorneys general have in mind is a back-door bailout for delinquent homeowners.

“It’s like taking money that should be paid to the Treasury and using it for an unappropriated social program,” said a lawyer for one of the top servicers, who spoke anonymously because the negotiations were still fluid and the banks had yet to be presented with a proposed settlement. “This is a bad idea, no matter who pays for it.”

The nation’s largest mortgage servicer, Bank of America, is already readying what will be among the industry’s main arguments: that it is unfair to reward homeowners who are delinquent or underwater but cannot point to specific errors in their case.

“The question is one of fairness, who should receive a modification and who should not,” said Jim Mahoney, a spokesman for the bank. Too broad a rescue package, he said, “could forestall the housing market recovery or even create perverse incentives.”

One possibility, industry insiders and banking lobbyists suggest, is that homeowners might deliberately become delinquent on their loans to get a principal reduction. Housing activists counter that homeowners seeking modifications are often told by their lenders to stop payments, and then end up in foreclosure.

The debate reflects some degree of weariness with foreclosure, as the administration’s signature mortgage modification program is under attack by both House Republicans and housing activists as a failure.

“There has been a tension in this country during the financial crisis,” said Michael S. Barr, a former Treasury official now at the University of Michigan Law School. “People want those who are in economic trouble to get a fair shake. But they don’t want them bailed out for making their own mistakes, like buying too big a home.”

While regulators worry about how punitive any eventual settlement should be, lawyers and other advocates for the foreclosed who were hoping for criminal charges are set to be disappointed.

That sanction, everyone seems to agree, is off the table. In testimony in December about the improper foreclosures by banks, Daniel K. Tarullo, a Federal Reserve governor, floated the notion of imposing fines on individuals found responsible for violations or banning them from banking, but officials involved in the talks said this idea had not gotten much traction either.

“The fact is, when the banks prepared their foreclosure paperwork for the courts, they lied about the credentials of their witnesses,” said Thomas Cox, a Maine lawyer who works with foreclosure assistance groups. “Criminal sanctions would act as a deterrent.”

14 Responses

  1. @cubed,
    We are thinking about doing JUST THAT, here in Washington. Submit the “declaration of ownership” and foreclose on their own home. They can then see that the foreclosure process is almost impossible to stop! Good point. We should proceed.

  2. This whole article is one big PR lie.

    “As the negotiations grind on, there are signs that the banks still have not come to grips with the problems plaguing the foreclosure process. These problems burst into view last fall with accounts of so-called robo-signers processing thousands of foreclosures at a time without the required legal safeguards. The resulting furor prompted the attorneys general and other government officials to step in. Some banks suspended foreclosures to review their processes before resuming.”

    I like how they foreclosure process. The process is already there, either you have the original loan docs or do not. What is there to fix? Time to manufacturer documents or fraud. What on earth is wrong with these people?????????

    I tell you, send to every person in Govenment a piece of paper saying you are forclosing on their home, and they have to prove you can’t do it.

  3. John Walsh needs to be tarred and feathered. He is a disgrace. How did it happen that the OCC ended up a servant to the banks instead of a regulating agency?

    The current delays in the length of time to process foreclosures is, I believe, simply a stalling tactic by the banks hoping that 1. A global solution will be offered up by congress that fixes all of the crimes, and 2. that the statute of limitations will run out on the criminality.

    Then, Americans from sea to sea will find themselves SOL due to SOL. Shit out of luck due to expired statutes of limitations. Once again it’s heads they win, tail we lose.

  4. These ‘thieving crooks’ took everybody down and yet they say in their recently released annual reports that ‘management’ may need to focus on other issues…what other ‘issues’…could it be they are looking for additional ways to hide their fraudulent acts. It was these bankers and others (including our own government offices that are supposed to be overseers of ‘legality’) that encouraged and agreed to overinflate home prices for years and lent money to mostly unsuspecting buyers (NOT because they wanted people to all be homeowners) but because they needed lots of mortgages to put into their ‘make-believe’ investment trusts so they could MAKE MUCHO $$$$ when the trust FAILED, which they knew it WOULD!!! THIEVES, CROOKS, FRAUDSTERS that should face the same criminal charges as Bernie Madoff.

  5. Neil

    Look up the 2002 Supporting anti terrorism through effective technologies act of 2002: 50.201 Definitions.

    “Act of terrorism” means any act determined to have met the following requirements or such other requirements as defined and specified by the Secretary of Homeland Security:

    (1) Is unlawful.

    (2) Causes harm,including financial harm, to a person, property, or entity, in the United States, or in the case of a domestic United States air carrier or a United States-flag vessel (or a vessel based principally in the United States on which United States income tax is paid and whose insurance coverage is subject to regulation in the United States), in or outside the United States.

    (3) Uses or attempts to use instrumentalities, weapons or other methods designed or intended to cause mass destruction, injury or other loss to citizens or institutions of the United States.

    “Block certification” means SAFETY Act certification of a technology class that the Department of Homeland Security (DHS) has determined to be an approved class of approved products for homeland security.

    “Block designation” means SAFETY Act designation of a technology class that the DHS has determined to be a Qualified Anti-Terrorism Technology (QATT).

    It seems that the acts by Wall Street and banks pretty well violate the above law under Homeland Security Act but where are they

    Hope you are well



  6. Faith,
    We ARE organizing and taking it to the streets. Sign up on And

    Make it happen in your own city. This is the way we win.

  7. Wait a minute — Consumer Financial Protection Bureau is weighing in on this??? How is that happening ? We cannot send OUR complaints to CFPA until they open in July of this year. Thus, CFPA is relying on information received from the OCC (who are not sharing all information) and Federal Reserve – who both support easy-going on the banks?? And, relying on information from the DOJs, FTC, and FDIC- who either do not respond to us — or “file” away our complaints.

    Who is really representing homeowners in these so-called settlements??

  8. Well said, the OCC is a front agency. It’s notoriety only expanded after John Dugan continued in his profession as a Bank lobbyist after Bush appointed him chief. Loan sharks hid behind Dugan.

  9. Lo and Behold
    Search your news today. After Arizona passed SB1259
    Bank of America is now modifying loans in Arizona!
    Because Arizona passed SB 1259 requiring the banks produce all necessary paperwork and note and assignments before the bank can take back the home.
    Its impossible for the banks to produce these documents that is why they are using these fake robo signed documents.
    Time for everyone to contact your congressperson and introduce legislation into every state to force these banks to produce all necessary paperwork to take homes.
    California congressman Filner is the person to introduce this bill he is upset with the bank and says Chase bank has the blood of soldiers on its hands
    Soldiers committing SUICIDE because these bank Servicers are stealiing their homes

    Contact this congressperson and tell him to introduce legislation like Arizona and Oregon
    SB 484 Oregon
    SB 1259 Arizona
    I contacted his office today
    760 355 8800
    619 422 5963

    Everyone else contact your congressperson. Let them know Bank servicers are stealing homes legislation like that in Arizona and Oregon needs to be passed in every state

  10. we need to organize and take it to the streets. Invest some money in having t-shirts made that tell the readers in a few words that you want wall street punished and a website where the reader can go for info. Spring will be here soon along with t-shirt weather. We need the masses to know they are not alone.

  11. “streamline the modification process”? Not going to happen. The servicers are not going to risk liability by removing a loan from the trust (and that’s assuming the loan actually made into the trust), modify it, and put it back.

    Downgrading criminal offenses to a civil nature with a monetary settlement is not acceptable.

    The AGs are creating a newly formed two party justice system. And we know who has the gold and makes the rules.

  12. Right back to the casting couches of the old days ,ladies and gentlemen ….. its not just who you know its also all about who you blow.As much as we would all like to pretend it’s otherwise this is how it has truly always been and from what I see no big change coming up in the near future unless we all get busy and stop this .

  13. Government and the mega banks are in it together. They are not going to sanction or arrest any of the ones responsible for the financial mess. This is going to go on and on until the people of the US are stripped of everything they own. Civil disobedience is a very necessary step for all of us who care about our country and its Constitution.

  14. The OCC is a regulatory JOKE! They are not regulating the banking industry…they are performing fellation on them.

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