Release on Foreclosure Fraud Settlement Looks Broader Than Advertised


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Release on Foreclosure Fraud Settlement Looks Broader Than Advertised

By: David Dayen

In his statement on the Administration’s new housing policies, CFPB Director Richard Cordray makes a fairly stunning response, considering it’s posted at the White House blog:

The principles articulated by the Obama administration today are good guideposts for much-needed reforms in the mortgage market. The problems that plague consumers are well-documented. Too many consumers were steered into complicated mortgages that they did not understand and couldn’t afford. Too many families were forced into foreclosure because paperwork was lost, phone calls went unanswered, errors were not resolved, or documents were falsified.

“To protect consumers, there must be clear rules of the road and real consequences for breaking them. The Consumer Bureau is already hard at work making the costs and risks of mortgages clear upfront through our Know Before You Owe project. The financial reform law also requires us to create new mortgage servicing rules that hold servicers accountable for disclosing fees and fixing problems. We are also working with other federal agencies to develop common-sense national servicing standards. But having rules in place isn’t enough. We are closely monitoring mortgage servicers to make sure that no one gains an unfair advantage by breaking the law. Taking these steps to fix the mortgage market is good for consumers, honest businesses, and our entire economy.

“Documents were falsified.” Not “allegedly” falsified, not in some cases falsified, just the simple fact that documents were falsified. This is coming from the former Attorney General of Ohio, who filed the first lawsuit against a bank over the aforementioned falsified documents.

But now that bank, Ally, is banking a $270 million charge for “foreclosure-related matters.” You can reliably read this as the precursor to a settlement, where Ally and the other top banks will pay $5 billion at most, and then make principal reductions on investor-owned mortgages (paying off the penalty with other people’s money) totaling another $17 billion or so, to get out of the liability for routinely falsifying documents. We’re not talking about errors. Falsification connotes knowing fraud. It’s called foreclosure fraud for a reason.

Which brings me back to the question of why any AG would release said liability – which as we’ll soon see is probably a release of liability going forward – for a miniscule amount of relief for their constituents. In fact, as we know from Shahien Nasiripour, the only state that has any idea of the level of relief their constituents would get is California, which publicly opposes the settlement. These other AGs are flying in blind, when $15 billion of the $25 billion total is committed to another state, and there’s no guarantee that their affected customers will see one dime from the settlement.

Furthermore, in the one area where the settlement has been said to have improved, the terms of the liability release, as Yves Smith demonstrates, the letter from Nevada AG Catherine Cortez Masto about the settlement indicates that the release could be broader than recent reports suggest. Masto’s crucial Question #3 out of 38 says: “The State release contains a provision that prevents the State AGs and banking regulators from seeking to invalidate past assignments or foreclosures. Does this prevent States from effectively challenging future foreclosure actions that are based on faulty prior assignments?”

That’s a key question. All of the fabricated mortgage assignments and associated documents used to foreclose are back-dated, so the banks can simply say that they are covered by the release. Meaning that the release could cover ONGOING foreclosure fraud. The foreclosure mills basically invent new, “found” documents all the time, so this is a real concern. Yves writes:

The banks will pay an amount into the fund, and all issues relating to robo-signing and foreclosure will be released by the AGs: the banks will have a state level release from all bad assignment/transfer issues.

Note this does not stop private parties, meaning individual borrowers, from suing on these very grounds. But taking the AGs out of the picture prevents them from using their subpoena and prosecutorial powers to determine how widespread these abuses are and to negotiate broad solutions. So we’ll have the worst of all possible worlds: individual borrowers getting better and better at fighting foreclosures (or if you are a pro bank type, getting better and better at throwing sand in the gears) with the AGs sidelined in their ability to shed light on these issues and bring them to resolution on a broader basis. And given that the OCC has already entered into weak consent orders with the major servicers, and past servicing settlements have been violated, I remain skeptical that this deal will stop these abuses. Remember, bank executives piously swore in 2010 that they stopped robosigning, yet their firms continue to engage in that practice.

So this is a major release of liability. And in exchange, we’re supposed to be happy about an ongoing investigation with the participation of the New York Attorney General, something Harold Meyerson lauds today. What this fails to recognize is that this release would invalidate one of Eric Schneiderman’s key motions against Bank of New York Mellon, in his bid to stop the settlement between Bank of America and investors over mortgage backed security claims. Schneiderman used the argument of mortgage originators failing to convey loan documentation to the trusts as a key part of why the settlement should be disallowed. That’s the “pre-crisis” conduct he’s going on about. This settlement would make it nearly impossible to litigate that. To quote Tom Adams (from Yves’ post):

Economically, if the banks get released from failing to properly transfer thousands of mortgages into the trusts for a mere $5 billion they will have gotten the deal of the century. Especially because this settlement will do nothing to stop borrowers and courts from challenging foreclosures and continuing to expose the failure to transfer. So not only will investors pick up the cost of most of the settlement, but they will then still be exposed to the bad transfers, while the banks get a get out of jail free card.

Bill Black has more on the lack of teeth to the prosecutions here.

When I first got wind of this new fraud unit, I thought that its goal was to grease the skids for the settlement. It’s really hard to see how events have rejected that thesis. So far, Schneiderman, Kamala Harris and Beau Biden remain nominally opposed to the deal. Their fellow AGs ought to understand what they’d be giving up here.

UPDATE: And now we have a possible indication that joining the robo-signing settlement is a condition of joining the federal/state RMBS working group:

Oregon Attorney General John Kroger likes what he sees in final deal between the multistate AG coalition and mortgage servicers and said Wednesday he will sign onto a settlement.

But Kroger also said he wants to join the federal task force investigating securitization and other lending mispractices at the largest banks […]

A spokesperson for Iowa AG Tom Miller, who has led the talks, said the deadline was extended for states to sign the deal to Feb. 6 from Friday at the request of an undisclosed AG. The multistate coalition will file the judgment in federal court assuming it gets a sufficient number of sign-ons.

Oregon was one of the states that met with dissident AGs prior to the announcement of the RMBS working group. Kroger also lists specific numbers to which borrowers in his state should expect (“$100 million to $200 million in relief”), so that’s new.

22 Responses

  1. Modify what? The banks at issue in the settlement have disposed of, or will dispose of, collection rights to subprime loans that were never mortgages to begin with. If they do not own the collection rights, they do not have to modify — by the settlement terms. Meaning do not have to comply with settlement. What kind of game is this??

    Where is today’s NY Times article here? Last minute ditch to tell it like it really is — and has been for years??? Where is it?

    Was Gretchen too late??


    I submitted this before and you never posted it……………….believe me now?

  3. feb 3 2012–OCCUPY LA’s Letter to Kamala Harris urging her to not settle and to place a moratorium on foreclosures

  4. Why Not “Occupy” Public Sector Pension Funds?
    A CIV FI post back in January 2010 entitled “Axis of Wall Street & Public Sector Unions” identified an irony still lost on the occupy movement’s rank and file – Wall Street is financed by the pension funds of unionized government workers. Every year, taxpayer funded government agencies pour hundreds of billions of dollars into Wall Street investment funds.

    Occupy Wall Street? Why not “occupy” Wall Street’s union paymasters, the government employee pension funds?

    Here’s a summary of the dynamics between Wall Street, unionized government workers, and the taxpayer:

    (1) The government workers provide services vital to the taxpayer, and charge the taxpayer, on average, about 40% of their income (middle class worker, all taxes – state, federal, social security, medicare, property, sales) to receive these services.

    (2) The government workers receive, in addition to their normal pay, funded by these taxes, pensions that are, on average, five times better than what taxpayers get from social security (the average government pension is $60K per year with an average retirement age of 55, the average social security benefit is $15K per year with an average retirement age of 65).

    (3) The government workers tell the taxpayers – don’t worry – you don’t have to pay additional taxes for us to get these generous pensions, because we’ll invest the money on Wall Street, and Wall Street will earn 7.75% per year on these investments.

    (4) Wall Street invests the taxpayer’s money, funneled through the government worker pension funds, demanding a return of 7.75%. To achieve this return, they invest in hedge funds and other manipulative, highly speculative investments. This increases the volatility of the markets, crowds out small investors, and drives down returns for small investors.

    To fund government worker pensions, what has happened is the government workers have taken the taxpayer’s money, and essentially lent it back to the taxpayers at a rate of 7.75% – at a time when 30 year mortgages are below 4.0%, the 10 year treasury hovers at around 2.0%, and the rate of GDP growth is at or below 3.0%, which is roughly the rate of inflation.

    Taxpayers provide the seed money for pension fund investments, these investments are aggressively managed which undermines the individual retirement investments the taxpayers make for themselves, then when the pension funds ultimately fail to meet their 7.75% targets, the taxpayers are assessed to cover the losses. Triple jeopardy.

    Every time another public sector union or government pension fund spokesperson claims that taxpayers do not bear the brunt of funding public sector pensions, read between the lines, and this is the rest of the story.

    The truth is contagious.

    On November 18th a prominent Southern California blogger of indeterminate political leanings (certainly no rock-ribbed conservative), Will Swaim, published an expose of his own entitled “How the revolutionary California labor movement became Wall Street’s biggest gambler.” Here are some excerpts from Swaim’s inimitable prose:

    “CalPERS is to Wall Street what a whale is to a Vegas Casino. A high roller. A player. The biggest swinging male appendage in the room. With $235.8 billion in assets, it is the nation’s largest pension fund, and among the biggest investors in the world. And it’s largely on the expected gains in its Wall Street investments that CalPERS has been able to persuade officials in many California cities and counties that they could pay rising pension benefits to their public employees…”

    “It wasn’t always this way. For decades after its 1931 founding as a pension program for state workers, CalPERS—then called the State Employees Retirement System (SERS)—made stodgy, sure-thing bond investments. That changed in 1953 when the legislature allowed SERS to invest in real estate. Thirteen years later, there was another loosening of the restraints on the agency’s investments when state voters passed a union-backed proposition allowing CalPERS to invest a quarter of its portfolio in stocks. In 1984, high on the fumes of the Reagan Revolution, labor pushed Prop. 21, allowing CalPERS to invest anything/everything in Wall Street. CalPERS had become a whale…”

    “You can begin to see the confluence of forces that would generate a pension problem when you also consider that, with life-expectancy rising and retirement-age falling, California offered public workers more generous pension benefits. In 1932, that benefit was 1.4 percent per year of service; the percentage increased to 1.6 percent under Gov. Warren, and to 2 percent when Gov. Ronald Reagan took over the Governor’s Mansion in Sacramento. It’s between 2 percent and 3 percent today…”

    “CalPERS has a reputation as an activist investor. The organization has insisted on quid pro quos: in exchange for investment cash, it has pushed for caps on executive pay and transparency; has led the way for human rights, environmental and labor standards in emerging markets; and participated in class-action lawsuits against major health insurance companies, including UnitedHealth Group…”

    “Leveraging that tradition, the city’s workers could reform their union and its bloated pensions. They could start by demanding that CalPERS invest their pensions in solid/stolid/boring U.S. bonds rather than in the speculative junk that fueled Wall Street’s rapid, unprecedented rise through the 1990s and its post-scriptural crash in 2008. That might—might—mean more modest retirements, of course, but it would certainly end union members’ hypocritical reliance on Wall Street—their affection for gambling when Wall Street inflates their pensions, their hatred of the market when it shapes the contours of their daily work…”

  5. The Axis of Wall Street & [Public Pension] Unions

    One of the greatest misconceptions on the left may be the suggestion that “us” refers to workers (hopefully unionized workers), along with government programs and regulations, and “them” refers to big business, their friends on Wall Street, and their puppets in government. At the risk of merely presenting an opposing paradigm that is equally over-simplified, here are some alternative scenarios. The open-minded reader may find them instructive.

    For over a decade, Wall Street has enjoyed an incestuous and exploitative relationship with public sector unions, because public employee pension funds have poured more new money into their equities markets than any other single source. This isn’t leveraged money or trading turnover, either, this is new money, cold hard cash that is transferred from the pockets of taxpayers into government payroll departments and turned over to the pension funds. In the United States each year, the pension fund contributions of 25 million government workers – at $10,000 per year each, which is probably a very conservative estimate – pour over 250 billion dollars into Wall Street.

    The way Wall Street seduced public sector unions into thinking they could ask for retirement benefits that, on average, are quadruple what the average private sector worker can expect from social security is the single biggest example of how Wall Street seduced the entire nation into believing they could enjoy a quality of life far in excess of what they actually were earning. Public sector union leadership can hardly be blamed for believing that their trillion dollar pension funds could earn 8.0% per year, forever, during an era when debt in general was exploding, asset bubbles were inflating relentlessly, and collateral-generated cash was inundating the economy. But now the party is over, and while the Wall Street barons smoke the proverbial cigarette and consolidate their winnings, public sector union officials are still doing their dirty work – intimidating politicians into raising taxes to continue feeding money into Wall Street pension funds that cannot hope to achieve 8.0% annual returns.

    Who else has a vested interest in suggesting an 8.0% annual rate of return is feasible forever, with trillion dollar investment funds, other than Wall Street and Public Sector Unions? At least in the case of Public Sector Unions, their leadership believed this nonsense, and now find themselves backed into a corner. During the real-estate bubble boom, Wall Street suckered everyone, by lobbying for the left-wing policies of lending money to people who couldn’t afford to borrow the money, which built the financial house of cards, and by lobbying for the right-wing policies of deregulating investment banks, so they could collateralize the mortgage-debt house of cards into 50 trillion dollars of phony money. And when the whole ridiculous scam collapsed, Wall Street took all the money off the table, collected bail-out money, and turned the United States into a debtor’s prison.

    The choice of the term “axis” to describe how public sector unions are the unwitting partners of Wall Street is not accidental. Because as the historical use of the term “axis” suggests, these alliances are pragmatic partnerships of entities who have become corrupt and grandiose, and are doomed to tragic dissolution. The only question is what equivalent of wars and poverty will we now have to endure as we struggle to reform Wall Street and roll back the delusional and unsustainable level of entitlements currently expected by Public Sector Unions. Here are some factors to consider as we hopefully move towards an economy based again on realistic and sustainable financial principles:

    1 – “Big Business” has been just as victimized and suckered by a poorly regulated Wall Street as the public sector unions. Unlike these unions, however, big business didn’t collude with Wall Street to impose trillions of dollars of liability onto taxpayers in order to fund unsustainable and inequitably generous public sector employee compensation packages.

    2 – The industrial products of corporate America, i.e. “Big Business,” create wealth. The financial products of Wall Street – properly regulated and at an appropriate scale – can assist in capital formation, liquidity, and economic growth, but that scale has been exceeded by at least an order of magnitude. At their current scale, Wall Street financial products are simply engines to expropriate massive amounts of wealth from the economy, producing nothing in return.

    3 – Passive investments such as the giant, trillion dollar public employee pension funds, will not see returns of 8.0% (inflation-adjusted 5.0%) again for a generation. There is too much money out there chasing too few genuine investments. You can’t saturate an economy with near-zero interest rate credit, then expect trillion dollar investment funds to perform at high single digit rates of return. The spread is too big.

    4 – Local public governments who issue bonds at tax-free rates of return of 5.0% or more to finance investments in their pension funds where they expect to generate rates of return that exceed 5.0% (notwithstanding the tax-free subsidy that is a further economic drain) are delusional. This practice of issuing “pension obligation bonds” is based on assumptions that are false. Pension obligation bonds will hasten a local public entity’s descent into bankruptcy, not alleviate it.

    5 – Public sector bond holders and public sector pensioners represent the same phenomenon – non-productive members of society (passive investors and retirees) who have placed demands on the economy that can no longer be fulfilled. The level of bond interest rates is too high, the level of public sector pension benefits is too high, the amount of money tied up in these obligations is too high a percentage of our national wealth, and as a result, both of these groups are destined to see their returns and their benefits reduced – and the sooner this happens, the less severe the resulting economic hardship will be to the nation.

    6 – There is NO comparison whatsoever between the “crisis” facing Social Security and the catastrophe facing public sector pensions. As argued in “Funding Social Security vs. Public Sector Pensions,” the U.S. is on track, within a generation, to be paying as much in absolute dollars to public sector retirees each year as they will be paying to social security recipients, despite the fact that social security recipients will be four times as numerous. Social security can be fixed with moderate adjustments: slightly lower benefits, slightly higher retirement ages, slightly higher withholding, and a slightly higher cap on wages before withholding ceases. Only the Wall Street / Public Sector Union axis has a vested interest in equating the moderate financial challenges facing social security with the totally insolvent public employee pensions.

    7 – The solution to restore solvency to taxpayer-funded retiree benefit plans is to move to a pay-as-you-go system, where current workers support retired workers, not rely on passive investment returns. As noted in #6, this will be easy to achieve with respect to social security, but it is impossible to achieve with respect to public sector pension funds unless the benefits are dramatically reduced. And why shouldn’t they be? Public sector employees already make more in current wages and benefits – why shouldn’t they just receive social security like the taxpayers who support them? And why should the government invest taxpayer’s money into the equities market with public employees holding all the upside, and taxpayers holding all the downside?

    In order to move back to a financially sustainable economy, the United States has a unique window of opportunity to reform Wall Street and reduce the benefits enjoyed by unionized public sector employees. This is because, as argued in “The China Bubble,” the United States still enjoys crucial advantages vs. the rest of the world’s national economies, a fact that grants us another decade or so to make some hard decisions and get back on track. But the beginning of that process depends on voters realizing that “big business” and Wall Street are not in collusion, they are in opposition. Big business creates products and wealth, and Wall Street, along with their henchmen in our unionized government entities – at least in their currently grotesquely overgrown versions – expropriate wealth and create nothing.

  6. they put martha stewart in jail for 6 months of acting on insider info and they are trying to let off the hook all of these fraudsters with a slap on the hand and I am just one of many with 517,500.00 loan

    what a shame this country has become

  7. “Schneiderman used the argument of mortgage originators failing to convey loan documentation to the trusts as a key part of why the settlement should be disallowed.”

    I totally agree with Schneiderman….

  8. Extend and pretend.
    Feed us crap and keep us in the dark like the good debt serfs
    we have become.
    However we have run out of tarmac and dirt
    road and the can cannot be kicked any further.
    They are all terrified that the serfs might look up
    from their dumbed down stupor and revolt and hang
    them all..
    That”s why they are trying to settle with the banks.

  9. sorry for grammar, spelling and typo errors i’m in a hurry and not proofing

  10. @MR

    I hear ya. That’s what they do best create confusion and illusion. I’m not an attorney so this is just tossing around ideas; did you add in your complaint the judicial notice stuff about being a pro se? I find that doing the research to know what to file to be extremely time consuming and difficult. Once you know what to file in response to what they filed, it is much easier to then research and compose a response. Perhaps there is a motion you can file that would stop them from the pleading merro-go-round they now have you on. Hey, believe me I feel for you. I also copy the state AG with everything they file and I file even though I get no response. I also send letters with legal documentation to the press and anyone else I think could possibly use the information and I then send a copy to their attorney showing who and where I’ve sent everything. Can’t tell you it does one iotta of good but I sure can’t hurt. Might not help me but perhaps it helps the next poor schmuck.

  11. Oh, I hit enter too soon.

    I am not a lawyer, and would kill myself should I wake up and find I was one of those immoral a-holes.

    Anything I say is not legal advice, and I do not intend it to be such. Please call a lawyer for such advice. This is just my insane rants and not legal advice.

  12. The problem with default judgements is your locked into the last amendment. I want a JURY!

    DId you name the exact amount of Damages? ooops too bad!

    Never, ever ask for default, (in this type of case) and name doe, doe, doe, or else you’ll be buried in motions from parties that have no standing, such as Wells Fargo Bank N.A. claiming I “served them” when I did not, and they were not the correct entity.

    I wasted mucho time with their BULLSHIT motions, and they were not even the right party. They never were even involved in truth!

  13. The ways to full blown civil war are paved with good intentions and lack of direction… Once again, it stems from the desire on our government’s part to be everything for everyone. Can’t be accomplished. That’s what got us in that mess in the first place: the inability to stay on the straight and arrow and keep due course in one direction or the other.

    A capitalist country was supposed to allow the banks to collapse. A socialist regime is supposed protects the people against big corporations. We’ve been doing the opposite in this country for 30 years: collapse middle class and protect big business.

    It can’t end well. It simply can’t. So, it won’t. No two ways about it. History has taught us over and over again what happens in this situation. And we don’t even have the excuse that “Jeez, we had no idea!!!”

  14. […] Link: Release on Foreclosure Fraud Settlement Looks Broader Than Advertised […]


    Fourth Amended Complaint of Martha Nali

    Google docs are difficult so I just uploaded it to scribd. You can also google my name. Hope this works

  16. @ Rabi

    I’m sure some are trying to do something to help, but I still don’t understand how criminals or better yet the GSM (government sponsored mafia) get to call the shots while the leading criminal protection agencies in the US can’t or won’t touch them? Why don’t they just put JD, BM or one of the other banker cartel in the presidents seat; can’t see where it would make any difference. Hell, better yet, why hold an election; they can just buy their actual seat in the oval office.

  17. @Martha

    I can’t get to anything but the google log in from the link posted. Have they never answered any of the complaints? If not, can’t you ask the court for an automatic ruling in your favor?

  18. @ Katheryn
    I am befuddled , confused, even delirious, with this foolishness that these bankers are allowed to be calling the shots and laying out terms of agreements after committing these crimes. The AGs etc negotiating with them are accessories. I wonder by how much their bank accounts will grow after the deal is inked?? Just a thought.

  19. […] Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: appraisal fraud, Beau Bid, CFPB, chain of title, Eric Schneiderman, foreclosure fraud, FORECLOSURE SETTLEMENT, foreclosures, global settlement, housing market, housing prices, investors, Kamala Harris, mortgage fruad, mortgages, Richard Cordray, settlement, state AG investigation, strategic default, uaction fraud Livinglies’s Weblog […]


    Senator Demands Answers from Freddie Mac’s Regulator

    Jesse Eisinger, ProPublica, and Chris Arnold, NPR News Feb. 3, 2012, 3:55 p.m.

    “…Senator Robert Casey (D-PA) sent a list of questions about Freddie Mac’s controversial trades to the mortgage giant’s regulator, highlighting how much remains unknown even after a flurry of statements from the regulator.

    ProPublica and NPR reported on Monday that Freddie Mac, the taxpayer-owned mortgage-insurance company, placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates.

    Questions the Senator put to the regulator, the Federal Housing Finance Agency, include why Freddie made the deals in the first place; when the FHFA learned of the trades; what role, if any, the FHFA played in them; and what the FHFA plans to do about the billions of dollars worth of deals Freddie still has on its books.

    Freddie began increasing those deals, called inverse floaters, deals dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.

    No evidence has emerged that these decisions were coordinated, and Freddie says that they weren’t.

    But the trades highlight a conflict of interest: Freddie’s charter calls for the company to make home loans more accessible, but Freddie also has giant investment portfolios and could lose substantial amounts of money if too many borrowers refinance…”

  21. This is the grandaddy of forged documents. Epic fraud, and they won’t even answer my complaint!

    My Fourth Amended Complaint

  22. I may be wrong but I think anything the mobsters are agreeing to means they know they are screwing everyone and they will continue to laugh all the way to their off shore undisclosed Fort Knox. Here’s my big question, “why do lawbreakers get to negotiate their own deals”? If I break the law can I just start negotiating my way out of criminal charges? I think not. I’m not understanding why this is so complicated when it can’t be made any clearer that they have broken so many laws and continue to “negotiate” what they are or are not willing to do. Just call me dumb but I just don’t get it.

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