Settlement Fades as Attorney Generals Balk At Amnesty for Banks

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EDITORIAL NOTE: The plan of the banks was that they would keep the money, let the economy go to hell, and also avoid criminal and civil proecutions for gross misbehavior. When the 50 state investigation was announced I was suspicious that it might be part of a plan that would absolve the banks and force the burden of their misdeeds entirely on homeowners.

Maybe that was the case. But now it isn’t the case, and I think the Occupy Wall Street people and Tea Party people and the rest of the nation that is disgusted with a $16 Trillion bailout, the benefits of which have yet to reach the American economy, the American government or any of its citizens (taxpayers), are demonstrating that any politician siding with the Banks this year is going to face the high probability of losing his or her job.

In the final analysis, I believe this can only be settled by (a) getting the signatures of everyone in the securitization chain including all past and current homeowners — on a new document that reflects the truth of the monetary transaction that took place when the loan was funded or (b) getting a court order that clears title after proper efforts have been made to find and pay the homeowners who were illegally deprived of title.

Without that, title will never be the same and neither with the housing market or the economy. The entire burden for this effort should fall on the banks who created it, not just because they created it but because they are in the best possible position and have the most information in which to sort this mess out.

Mortgage Probe Short of Settlement as States Remain Divided After a Year

By David McLaughlin and Margaret Cronin Fisk -// Oct 12, 2011 9:00 PM MTThu Oct 13

Enlarge image A Foreclosure Sign Hangs Outside Of A Home

A Foreclosure Sign Hangs Outside Of A Home

Joshua Lott/Bloomberg

A year after the start of a nationwide investigation of foreclosure practices, state and federal negotiators haven’t settled with banks and face infighting that might leave some states outside any agreement.

A year after the start of a nationwide investigation of foreclosure practices, state and federal negotiators haven’t settled with banks and face infighting that might leave some states outside any agreement. Photographer: Joshua Lott/Bloomberg

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A year after the start of a nationwide investigation of foreclosure practices, state and federal negotiators haven’t settled with banks and face infighting that might leave some states outside any agreement.

A year ago today, all 50 state attorneys general announced they were investigating the foreclosure procedures of banks following reports they were using faulty documents to seize homes and possibly violating state laws.

The effort, since broadened to force banks to provide mortgage relief for homeowners, hasn’t resulted in a deal. States, meanwhile, are fighting among themselves. The biggest, California, walked away from the talks, possibly putting a nationwide agreement out of reach.

Criticism has come from Democratic and Republican attorneys general since the spring. Republicans portrayed a state-federal proposal as overreaching. Democrats have insisted a settlement shouldn’t protect banks from enforcement actions.

“We’re trying to reform the entire mortgage-servicing industry, which has been an intractable problem for this country the last four years,” Iowa Assistant Attorney General Patrick Madigan, who is helping to lead negotiations, said in an interview. “That’s something nobody else has been able to achieve.”

The five largest mortgage servicers, including Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM), have been negotiating a settlement with states’ legal chiefs and federal officials from agencies including the Justice and Housing and Urban Development departments.

Shares Down

Bank shares have sunk since the 50-state investigation was announced, with Charlotte, North Carolina-based Bank of America falling 51 percent, New York-based JPMorgan declining 18 percent and New York-based Citigroup Inc. (C) falling 31 percent.

The extended negotiations have been a drag on bank shares, said Bernard Nash, a lawyer at Dickstein Shapiro LLP in Washington who leads the firm’s state attorneys general practice. The banks need a settlement, he said.

“The market hates uncertainty,” he said. “Once you cut the deal, no matter how big, the market will go up.”

The investigation was triggered by the disclosure that foreclosure documents had been signed without verification of the facts, which came to be known as robosigning. In response, banks said they were suspending foreclosure actions across the country to review their procedures.

Homeowners, meanwhile, complained about the difficulty of obtaining loan modifications to reduce their payments. The federal government’s Home Affordable Modification Program hasn’t delivered as promised, according to a government report.

Lack of Success

The program “continues to fall dramatically short of any meaningful standard of success,” according to the report this year by the Office of the Special Inspector General for the Troubled Asset Relief Program.

Chief state legal officers, seeing that federal banking regulators weren’t addressing the crisis, took on the “gigantic task,” said Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington. He said settlement talks may still fall apart.

“This is not an easy thing to do,” he said. “But when nobody else is stepping up and people are being wrongfully foreclosed on and banks are violating state foreclosure laws in many instances, they saw an opportunity and felt like, ‘We need to protect consumers.’”

Officials are seeking an accord that would pay for loan modifications for borrowers, including reductions of principal, and require proper foreclosure documents, according to a 27-page term sheet offered to the banks in March.

Proposed Terms

The settlement would prohibit banks from initiating a foreclosure while a loan modification is being considered. It would require monitoring of the banks to ensure compliance.

In addition to Bank of America, JPMorgan and Citigroup, the banks involved are San Francisco-based Wells Fargo & Co. (WFC) and Detroit-based Ally Financial Inc.

A Bank of America spokesman, Lawrence Grayson, declined to comment on the negotiations. Citigroup’s Mark Rodgers, Wells Fargo’s Vickee Adams, JPMorgan’s Tom Kelly and Ally’s Gina Proia also declined to comment on them.

“Attorneys general have worked long and hard together to pull together an agreement and may not make it,” said James Tierney, director of Columbia Law School’s National State Attorneys General Program. “But their disagreements have been honest ones, and they have certainly come closer than any other groups of elected officials in actually doing something to enforce laws and help consumers.”

Schneiderman Dropped

In August, Iowa Attorney General Tom Miller, the Democrat who is leading talks for the states, removed New York Attorney General Eric Schneiderman from the executive committee representing the 50 states, saying Schneiderman was “working to actively undermine” negotiations.

Schneiderman and other state lawyers have questioned the scope of the liability releases that would be granted to the banks in exchange for any settlement. They said the banks shouldn’t receive releases for matters that haven’t been fully investigated, including the packaging of mortgage loans into securities.

A nationwide deal may be out of reach because different states face widely different degrees of harm from the housing market collapse and resulting foreclosures, said Tierney and Allison J. Schoenthal, a lawyer at Hogan Lovells in New York who does work for lenders and servicers. That may push states such as Nevada, California and New York to seek separate accords.

“They have constituents who are particularly angry because they’ve been hit by foreclosures,” Schoenthal said. “They probably have a lot of pressure on them. Look at the protests downtown. You don’t see that in Iowa,” she said, referring to the Occupy Wall Street demonstrations in New York.

California’s Harris

California Attorney General Kamala Harris, a Democrat, said Sept. 30 that she was rejecting a proposed deal and would conduct her own mortgage investigation.

The state “was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated,” Harris said. Shum Preston, her spokesman, declined to comment on whether the state may sign on to any settlement.

Massachusetts Attorney General Martha Coakley said last week that she was preparing to sue banks. Coakley, a Democrat, “lost confidence” that an agreement would hold banks “accountable for wrongful foreclosures,” she said in a statement.

An agreement hasn’t been reached because state and federal officials overreached by demanding a “wildly excessive” payment from the banks, said Bob Davis, an executive vice president at the American Bankers Association.

Foreclosure Review

A federal regulatory review of bank foreclosure practices didn’t find significant harm to consumers, Davis said.

“A settlement is not likely to be agreed to if one side is asking for remuneration or fines that the other side believes is wildly unbalanced to the proof of harm to consumers,” Davis said.

California and New York are motivated to squeeze as much money as they can from the banks regardless of the connection to consumer harm, Virginia Attorney General Kenneth Cuccinelli, a Republican, said in an interview. Their actions have been “outrageous,” he said.

“Their mentality here is Spitzer on steroids,” he said, referring to former New York Attorney General Eliot Spitzer. “The only reasonable explanation is they are so rapaciously engaged in ripping every penny out of any company they can get their hands on.”

No Blind Eye

Danny Kanner, a spokesman for Schneiderman, a Democrat, said the attorney general “refuses to turn a blind eye to potential misconduct” that led to the financial crisis. Preston, Harris’s spokesman, said California residents “rightly expect that those who caused their pain through wrongdoing will be held accountable.”

Cuccinelli and other Republican attorneys general, including Greg Abbott in Texas and Pam Bondi in Florida, have criticized the plan to force banks to pay for principal reductions. They argue it would reward homeowners who choose not to pay their mortgage.

Loan modifications should be limited and address only conduct under investigation such as improper handling of loan modification requests, they said in a March 22 letter to Miller.

Cuccinelli said he might sign on to an agreement that includes principal reductions. Bondi said in a statement that she is “open to principal reduction, so long as it remedies harm to consumers and stays consistent with the law enforcement role of state attorneys general.”

The settlement will provide “substantial” principal reductions for homeowners and won’t prevent individual states from pursuing securities-fraud claims against banks, Miller said in an interview.

Suits by Cities

Municipalities will be free to sue banks over fees that weren’t paid because of electronic mortgage filings, he said.

Miller said he expects more than 40 states to join the agreement and hopes California will be among them. He cautioned that a settlement isn’t certain and declined to comment on details of the talks.

“We’re getting closer,” Miller said. “These are challenging and complicated and very broad issues.”

Banks should settle to resolve liabilities even if they remain exposed to lawsuits from states over mortgage securitization, said Nash at Dickstein Shapiro. Without an agreement, banks would probably face lawsuits from states and possibly federal agencies. Illinois Attorney General Lisa Madigan and North Carolina Attorney General Roy Cooper, both Democrats, in June threatened litigation if negotiations fall apart.

“The banks may be resigned to the fact that they’re not going to be released from securitization” claims, Nash said. “They ought to settle what they can. They won’t get it all done in the near term.”

To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net; Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net.

To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net and; Michael Hytha at mhytha@bloomberg.net.

21 Responses

  1. The best cure is UPSIDE-DOWN EXECUTIONS of the 0.1% who caused this all: http://www.youtube.com/watch?v=MoT_5Txwp5w

  2. Now that all crimes have been committed, and everything plundered by the corrupt banking system, and that it is too late to help the 99.9%, Clown Attorneys General back securitization of mortgage loans by only 5% of the entire mortgage amount, as opposed to its current 0%, see below: http://www.sec.gov/comments/df-title-ix/asset-backed-securities/assetbackedsecurities-40.pdf And while, fraudsters like title industry, real estate, etc. are against 5%, and are pushing to dump all the fraudulently foreclosed houses as their prime target, as they confess:
    “In
 other
 words,
 the 
important 
goal 
of
 clearing
 historically
 high
 foreclosure 
inventory
–
a
 necessary 
condition 
for
 a
 stabilized 
housing
 market
–will
 be 
undermined.” As you find in this link: http://www.sec.gov/comments/df-title-ix/asset-backed-securities/assetbackedsecurities-36.pdf While fraudsters Morgan, etal. boast of having counterfeited all securitization at 6 cents to the $$: “In 2009 and earlier, for every $100 of securitization, only $0.06 dollars of capital (i.e. 6 cents) is required, since dealers could theoretically sell all but the IOs and residuals, for instance.” As you find in the following link: http://www.zigasassociates.com/Text/JPMorgan_analysis.pdf
    Morgan also calls: “Credit Demand: The raw materials for securitization”. “A key challenge for securitization going forward will be finding the raw materials, credit, to produce the securitizations.” The above quote means that the credit made out of the 6 theoretical cents to the dollar, which is itself overblown, because with the six trillions of “fraudulently securitized” real estate these fraudsters created over 600 trillions of counterfeit derivatives and sold it around the world (as INVESTMENTS), now collapsing other countries’ economies, in addition to destroying USA.

  3. Bankruptcy gets rid of debt–all kinds of debt. You can always do an adversarial proceeeding inside bankruptcy.

    The best way is to sue the pretender lenders and/or the servicer. Slowly but surely, the tide is turning. I have received a good decision on a motion to get a depo of the robo-signer. Should be real interesting!

  4. It is necessary to establish a chain of custody of the documents themselves. The electronic trail should be evidenced by ocasional cross reference to the fact of physical possession of the note—given the files may be in custody of a federal bankruptcy court. If the physical promissory note cannot be produced, then there is no assurance of cancellation—or effective release —even a promise by a big bank is on the edge of being a potential or contingent liability that would be filled by a gobt loss bailout. If the bank is backstopped for losses —then losses from bad bet gambling–predatory lending or collection just are written off as losses against capital that is going to be replaced by the taxpayer. Apparently–even the commom shareholders are safe with automatic equity carryover—when they should be wiped out. Common trading at same pricing as buffets preferred—why do the laws not apply to banks?

    “Too big to fail” is just plain too big —-they need to cut back of federal charters and move too big banks out of consumer lending—they are cutthroats that use globally leveraged political stroke to press people in simple common pleas—hardly equal bargaining power anywhere in the system from origination to securitization/syndication, to collection, and litigation documentation and extreme tactics—abuse of process.

  5. Unable to meet BK plan. Trying to stay strong. NO more food and can not pay utilities.
    Send strength and honor in my direction.

  6. TARP Inspector General:

    “…without the mortgage, a note is simply an unsecured debt obligation, no different from credit card debt…”

    THERE ARE NO MORTGAGES…NO FUNDING…HELLO???

  7. http://newscastmedia.com/blog/2011/08/08/fake-mortgage-backed-securities-prompt-aig-to-sue-bank-of-america/

    “…The homeowner expects to be a “Borrower” receiving a “Loan” from the bank. The bank then sells the loan to a Special Purpose Vehicle (a shell company) and gets paid in full without recourse, and also gets a commission as a finder’s fee, but the bank never funded the loan. The homeowner was tricked into believing the bank funded the loan, when the bank was just paid for finding a homeowner willing to sell the debt obligation. The bank’s commission was also for the bank to allow its name to be on the instrument, and often to act as Servicer to get monthly fees.

    The homeowner was never told truth about who funded the transaction, because a Deed of Trust would not normally be allowed for a Financial Asset purchased by a Securitization Trust (a Security covered by security laws), or a Commercial Paper which is covered by the Uniform Commercial Code Division (UCC) 8, whereas Securitized Transactions with a Deed of Trust are covered under UCC 9.

    The “Lender” named on the instrument did not fund the transaction, and therefore was not really the “Lender” at all. They acted only as a “Nominal Lender”, named on the debt instrument only to facilitate the creation of a Deed of Trust or Mortgage to secure the debt obligation as an alleged “Loan”, when it was not a “Loan”, but rather the receptacle for an Asset-Backed Investment Security. The “Pretender Lender” was paid in full, plus a commission, and lost interest in the debt obligation.

    Also, the Deed of Trust or Mortgage can’t secure an Asset-Backed Investment Security, and homeowners were tricked into thinking they were “Borrowers” of “Loans”,when they were actually SELLERS of a debt instrument to a Securitization Special Purpose Vehicle. An invalid Deed of Trust or Mortgage, was fraudulently procured under the guise of a “Loan”, when it wasn’t a Loan, but rather the “Purchase of a Note” into an Asset-Backed Investment Security.

    The investor on the other hand, who put up the money was never told that the mortgage-backed security was never mortgage backed because the majority of them do not make it into the trust, as they are resold over and over again. The pretender-lender holds on to the Note and in most cases never delivers it into the
    trust as admitted by Countrywide representative in Kemp v. Countrywide, Case No. 08-18700-JHW.

    None of this is revealed to the homeowner or investors at closing, hence the fraud lawsuits that are being filed. Insurers like AIG were taken for a ride, because most of these mortgage-backed securities that they insured never became assets of the trusts. The trusts were either empty or had bad mortgages.

    The Pooling and Servicing Agreement, the document that governs the trust Section 2.01(a) states:

    (a)“Each Seller concurrently with the execution and delivery hereof, hereby sells, transfers, assigns, sets over and otherwise conveys to the Depositor, without recourse, all its respective right, title and interest in and to the related Mortgage Loans…”

    The Depositor then assigns the mortgage to the Trustee who deposits it into the trust for the benefit of the Certificateholders. If the mortgage is either a non-qualified mortgage delivered into a trust, or is simply not delivered into the trust, these defects can never be cured because when a mortgage is securitized the act is irreversible. You cannot unscramble the eggs….”

  8. […] Livinglies’s Weblog Filed Under: Foreclosure Law News, Foreclosure News Tagged With: crisis, foreclosure, […]

  9. this is exactly the case, and what happens if you total the used kar you thought you rightfully owned, there is a loss, a loss payee, and junk car and title. There is an equity position of the rightful owner, as he, too, has a claim to state. The contemporaneous agreements, pledges of interest to multiple parties, broken securitizations absorbed by Treasury via TARP, the alleged losses are all exponentially increased with leverage to the point that the FedRes/FedGov/FDIC has no option but to follow through on the scam to serve “the greater good”. Read that as “protect the banks”.

    But, back to the car. Who sold the kar? Under what pretense was the vehicle acquired? who was the true owner (holder) of title to the car?
    Therein lies the rub.
    Lucky for me, I’m the owner in law and equity. Wisconsin is a lien state. You prove up a lien in bankruptcy court. It takes more than the presentment of fraudulent documents.
    Servicer misconduct is evidenced by the failure to surrender control of the asset in securitization. This can only be evidenced by recording the asset and completing transfer of asset.
    Question for you BK guys: do state mortgage law statutes apply in a Federal jurisdiction at all?
    Louise?

  10. […] Settlement Fades as Attorney Generals Balk At Amnesty for Banks […]

  11. Hot off the press.
    California attorney General has new plan

    http://stopforeclosurefraud.com/2011/10/14/ca-ag-kamala-harris-11-0014-foreclosure-modification-act-prohibits-lenders-from-foreclosing-on-california-citizens-personal-home/

    Enraged what happens if by accident you buy a stolen vehicle from a usedkarguy (joke Mr. usedkarguy).and the rightful owner with the pink slip shows up a year later.

    You are out of Car and out of money. So Marie maybe their is hope.

    NEVER AGAIN.

  12. It doesn’t matter the stroke of a pen, sooner or later each of these
    properties will end up in court due to a clouded or broken title.
    B0A has been involved in this kind of situation since the early
    1980s, so it’s easy to assume other big banks have also. It would be
    interesting to find out how the named bank above was able to get
    Stewart Title to clear up a 70 year old fence feud, when the original
    owners had been dead and gone for many years in order to write
    a clear title policy on the property being bought through B0A.

  13. no mortgages…just unsecured false default debt… dis-chargeable in bk…

  14. Marie,

    I feel your hurt and I believe, as you do, that if anything is done to help homeowners, it will not be retroactive for the exact reasons you outlined: going back is impossible, especially if foreclosed houses were already sold.

    Whatever happens, there will be losers and you seem to be among those. I do believe, however, that compensation for fraudulent foreclosures may not be completely out of the picture. I, for one, would wait for a criminal investigation to be concluded and, when sanctions are handed out, I would sue in civil court the foreclosing party and everyone else ever involved in my mortgage. You may never get the farm back but you may very well end up being compensated. So, don’t lose hope. You never know.

  15. “…the truth of the monetary transaction that took place when the loan was funded…”

    Neil—please stop perpetuating the “funded” notion. It just isn’t true. It’s so obvious now.

    I know you understand what ANONYMOUS has been saying. The research is there. The truth is out. You won’t admit it because of your “investor” clients. Sad.

  16. A man:

    Forgiving debt is not the same as canceling mortgages or more important, clearing title and compensating victims. Bankruptcy works for debt forgiveness (unless it’s a student loan of course)

    Consider the millions upon millions of properties all screwed up by this scam.  Where do you find and serve these former owners?   Do you have any notion of how long this process would take or how much it would cost??   

    Never happen.  The politicians want this problem solved.  This blog is talking about another agonizing, squabble filled set of procedures that must be DEVISED before they can even be tried.  

    Meanwhile the problem of the dispossessed and their former properties languishes awaiting yet another fix.

    Don’t think so.   Those OWSreeters are an unknown. Don’t count on their actions to solve anything or prove anything. I wish as much as anyone that they would make a difference. But twenty somethings haven’t lost the farm yet.   As I have……

  17. Any one have any idea about Maryland’s AG?

  18. St. Louis PD has barricaded the Bank of America building and is refusing customer access to his own money.

    http://www.youtube.com/watch?v=Db_P0wHsSz0&feature=youtu.be

    Be Strong and Courageous

  19. Marie I think Occupy wallstreet sides with Neil Garfield’s version

    166,00 people in New York asked and got Bloomberg to back off on evicting the protestors in Zuccoti Square.

    The American People have so much debt and their salaries are shrinking the only proven thing to do is to forgive the debt. There is no other solution. And I am not talking about Punitive damages to the borrowers and investors yet. There is also a movement for people to take their money out of the too big to fail Banks and put in smaller community banks. A run on the banks.

    NEVER AGAIN.

  20. Mr Garfield 

    Last week you opined about a different solution

    As I’ve said before and knowing a bit about the highhandedness of judges who care nothing about justice or truth, the solution will be draconian. Precious few homeowners will be compensated.  No one will want to waste the time or money to find dispossessed honeowners.  Are you kidding?   This will be done by fiat.  The titles will be reset by law or the stroke of a pen and the homeowner losses will be expunged., forgotten, annihilated.   There is no other solution

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