BAILOUT TO STATE BUDGETS: AZ Uses Housing Settlement Money for Prisons

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Editor’s Comment:

The general consensus is that the homeowner borrowers are simply at the bottom of the food chain, not worthy of dignity, respect or any assistance to recover from the harm caused by Wall Street. Now small as it is, the banks have partially settled the matter by an agreement that bars the states from pursuing certain types of claims conditioned on several terms, one of which was the payment of money from the banks that presumably would be used to fund programs for the beleaguered homeowners without whose purchasing power, the economy is simply not going to revive. Not only are many states taking the money and simply putting it into general funds, but Arizona, over the objection of its own Attorney General is taking the money and applying to pay for prison expenses.

Here is the sad punch line for Arizona. The prison system in that state and others is largely “privatized” which is to say that the state “hired” new private companies created for the sole purpose of earning a profit off the imprisonment of the state’s citizens. Rumors abound that the current governor has a financial interest in the largest private prison company.

The prison lobby has been hard at work ever since privatizing prisons became the new way to get rich using taxpayers dollars. Not only are we paying more to house more prisoners because the laws a restructured to make more behavior crimes, but now our part of the housing settlement is also going to the prisons. Another bailout that was never needed or wanted. Meanwhile the budget of  Arizona continues to rise from incarcerating its citizens and the profiteers (not entrepreneurs by any stretch of the imagination) are getting a gift of more money from the state out of the multistate settlement.

Needy States Use Housing Aid Cash to Plug Budgets

By SHAILA DEWAN

Only 27 states have devoted all their funds from the banks to housing programs, according to a report by Enterprise Community Partners, a national affordable housing group. So far about 15 states have said they will use all or most of the money for other purposes.

In Texas, $125 million went straight to the general fund. Missouri will use its $40 million to soften cuts to higher education. Indiana is spending more than half its allotment to pay energy bills for low-income families, while Virginia will use most of its $67 million to help revenue-starved local governments.

Like California, some other states with outsize problems from the housing bust are spending the money for something other than homeowner relief. Georgia, where home prices are still falling, will use its $99 million to lure companies to the state.

“The governor has decided to use the discretionary money for economic development,” said a spokesman for Nathan Deal, Georgia’s governor, a Republican. “He believes that the best way to prevent foreclosures amongst honest homeowners who have experienced hard times is to create jobs here in our state.”

Andy Schneggenburger, the executive director of the Atlanta Housing Association of Neighborhood-Based Developers, said the decision showed “a real lack of comprehension of the depths of the foreclosure problem.”

The $2.5 billion was intended to be under the control of the state attorneys general, who negotiated the settlement with the five banks — Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally. But there is enough wiggle room in the agreement, as well as in separate terms agreed to by each state, to give legislatures and governors wide latitude. The money can, for example, be counted as a “civil penalty” won by the state, and some leaders have argued that states are entitled to the money because the housing crash decimated tax collections.

Shaun Donovan, the federal housing secretary, has been privately urging state officials to spend the money as intended. “Other uses fail to capitalize on the opportunities presented by the settlement to bring real, concerted relief to homeowners and the communities in which they live,” he said Tuesday.

Some attorneys general have complied quietly with requests to repurpose the money, while others have protested. Lisa Madigan, the Democratic attorney general of Illinois, said she would oppose any effort to divert the funds. Tom Horne, the Republican attorney general of Arizona, said he disagreed with the state’s move to take about half its $97 million, which officials initially said was needed for prisons.

But Mr. Horne said he would not oppose the shift because the governor and the Legislature had authority over budgetary matters. The Arizona Center for Law in the Public Interest has said it will sue to stop Mr. Horne from transferring the money.


IL AG ISSUES NEW SUBPOENAS TO LPS AND NTC

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MADIGAN ISSUES SUBPOENAS TO LPS, NationWide Title Clearing ; WIDENS ‘ROBOSIGNING’ PROBE

FROM STOPFORECLOSURENOW.COM

MADIGAN ISSUES SUBPOENAS TO LPS, NationWide Title Clearing ; WIDENS ‘ROBOSIGNING’ PROBE

Chicago — Attorney General Lisa Madigan today expanded her investigation into “robosigning” practices, issuing subpoenas against two national mortgage servicing support providers. The subpoenas are the latest effort in Madigan’s ongoing probe into the fraudulent practices used by banks and other mortgage institutions that contributed to the collapse of the U.S. housing market and the subsequent global financial crisis.

Madigan issued subpoenas against Lender Processing Services Inc. and Nationwide Title Clearing Inc., two Florida-based corporations that provide “document preparation services” and other loan management services to mortgage lenders for use against borrowers who are in default, foreclosure or bankruptcy.

“Foreclosure became a rubber-stamping operation that robbed many homeowners of the American Dream without a fair and accurate process,” Attorney General Madigan said. “I will not relent in my investigation into the fraudulent practices by lenders and others that caused and exacerbated the mortgage crisis and the resulting massive foreclosure crisis.”

Lender Processing Services (LPS) provides loan servicing support for more than 50 percent of all U.S. mortgages. More than 80 financial institutions use LPS to service more than 30 million loans. These loans have an outstanding principal balance exceeding $4.5 trillion.

Nationwide Title Clearing (NTC) provides a range of mortgage loan services to eight of the top 10 lenders and mortgage servicers in the country. NTC specializes in creating, processing and recording mortgage assignments, which are often needed for a lender to foreclose on a borrower.

Madigan will investigate reported allegations that LPS and NTC engaged in the practice of “robosigning” legal documents filed with the court to foreclose on borrowers. Robosigning occurs when an individual has no knowledge of the information contained in the document and often doesn’t even read or understand the document that he or she is signing. The use of robosigned documents was pervasive as lenders foreclosed on borrowers’ homes. The probe will also include a complete review of the accuracy of the systems and services that LPS and NTC provide to the large lenders including servicing platforms, foreclosure attorney interaction with these platforms and the assignment of mortgage process.

Attorney General Madigan said former employees of LPS, NTC, or former employees of any residential mortgage servicer or bank who have knowledge of any unlawful practices relating to mortgage servicing or the execution of documents should call her Homeowner Helpline at 1-866-544-7151 to aid in the investigation.

Ohio Attorney General Fights Against Wall Street, Joining More Attorneys General

October 11, 2010

Ohio Attorney General Fights Against Wall Street

By MICHAEL POWELL

COLUMBUS, Ohio — Back East, at the corner of Broad and Wall Streets, the view is swell. The Dow is soaring, and bankers look pleased.

But here on East Broad Street, the mood is gloomier. At least 90,000 residential and commercial foreclosure notices will be filed in Ohio this year. Pension funds for teachers, secretaries and janitors have suffered grave losses. And multitudes of the unemployed in Ohio now speak of turning to prayer.

Ohio’s attorney general, Richard Cordray, might be seen as their pinstriped avenger.

“There’s a belief here that Wall Street is a fixed casino and it’s back in business, and we’re left holding the bag,” said Mr. Cordray, whose office overlooks East Broad. “It’s important for us to show we’ll go after a company that does wrong.”

Mr. Cordray in two years in office has demonstrated a willingness to sue early and often, filing lawsuits against global financial houses, rating agencies, subprime lenders and foreclosure scammers. He has wrested about $2 billion so far, a string of gilded pelts: a $475 million Merrill Lynch settlement, $400 million from Marsh & McLennan and $725 million from the American International Group.

Last week, he filed suit against GMAC Mortgage, accusing the loan servicer of filing fraudulent affidavits in hundreds of Ohio foreclosures.

His office has returned money to investors, pension funds, schools and cities. And he has directed millions to agencies fighting foreclosure.

“We see what Washington doesn’t: the houses lying vacant, the eyesore stripped for copper piping with mattresses out back,” Mr. Cordray says. “We bailed out irresponsible banks, but we forgot about everyone else.”

It speaks to this political age that such words are more rarely heard from federal regulators, who walk quietly and carry big bailout checks. Instead state attorneys general, in this case, a sandy-haired 51-year-old Democrat who sits about 400 miles from Washington, are giving full throat to popular outrage.

If Eliot Spitzer, the former New York attorney general, was the prototype of this breed, a handful of current ones, like Mr. Cordray, Martha Coakley of Massachusetts, Lisa Madigan of Illinois, Tom Miller of Iowa and Roy Cooper of North Carolina, lay claim to his mantle. Like recessionary scouts, they spot trouble, like a rapacious foreclosure-rescue operator, a predatory credit card company or a financial firm draining a pension fund.

Ms. Coakley secured millions of dollars in mortgage modifications from Countrywide Financial and reached a $102 million settlement with Morgan Stanley over its role in financing the subprime loans that fed the housing crash in Massachusetts.

“We were the first to go after predatory loans — we’re not waiting for federal agencies to act,” Ms. Coakley said.

Some express skepticism, suggesting that such lawsuits are emotionally pleasing but economically destructive. Former Senator Michael DeWine, a Republican who is running against Mr. Cordray, a Democrat, in the November election, has implied that Mr. Cordray wields an antibusiness cudgel. Better to rely on federal regulators, others argue, to constrain global corporations.

That strikes James E. Tierney, director of the National State Attorneys General Program at Columbia, as a bit beside the point.

“Is state action as effective as a federal regulator going after these companies? Absolutely not,” says Mr. Tierney, a former state attorney general for Maine. “But when regulators are too worried about giving offense, there’s no reason an enterprising attorney general can’t go in there,”

Born in Grove City, Ohio, Mr. Cordray was educated at Michigan State, Oxford and the University of Chicago Law School. A Supreme Court clerk, he also argued cases before the court. In 1987, he enjoyed a run as a five-time winner on the television show “Jeopardy!”

Somewhere along the way, he hankered for more. His father ran a program for mentally disabled people; his mother, a social worker, founded an organization of foster grandparents; and he wanted to enter the public sphere. Mr. Cordray began running for office.

His yearning often went unrequited; voters, he noted with a hike of the eyebrows, elected him state representative but rejected his run for Congress and an early attempt at state attorney general.

He shrugs.

“I really got my head pounded in over the years in politics,” Mr. Cordray says. “My wife thought I was nuts.”

Eventually, he downsized his ambitions, and ran successfully for Franklin County treasurer and later for state treasurer. And in 2008, he won a special election for attorney general.

Mr. Cordray is no William Jennings Bryan inveighing against the evils of monopoly capital. He can be eloquent about corporate misbehavior, in an eyes-downcast and soft-spoken fashion. (His language reads hotter on the page than it sounds in person.)

He is, however, tapping a populist tradition in Ohio. This is where politicians mounted challenges to the Standard Oil monopoly of John Rockefeller and where Senator John Sherman led a late 19th-century campaign to pass the Sherman Antitrust Act, which was the first law to require the federal government to investigate companies suspected of running cartels and monopolies.

Mr. Cordray carefully describes his allegiance to capitalism, although he says the financial crisis should explode forever the efficient-markets theory, popular with economists, that the best market is a self-correcting one. (Adam Smith’s “Wealth of Nations” shares space on his office bookshelf with books by the urbane Keynesian John Kenneth Galbraith.)

“The notion that banks will just get things right over time is perhaps true,” Mr. Cordray says. “But over what time period, and at what terrible cost to the individual American?”

Certainly, he has not minced words in pursuing a steady stream of cases against corporations.

He accused Marsh & McLennan of conspiring to eliminate competition in the insurance business by generating fictitious quotes. He denounced three credit rating firms, Fitch Ratings, Moody’s Investor Services and Standard & Poor’s, for giving inflated ratings to packages of troubled mortgages put together by the big investment houses. He says that Ohio pension funds lost close to half a billion dollars by investing in those triple-A rated securities.

And last October, he accused Bank of America officials of concealing critical facts in the acquisition of Merrill Lynch, even as that firm careened toward insolvency. Top bankers, he said, had not come remotely clean about the extent of the losses at Merrill and its bonuses.

The lawsuit against Bank of America was the first of its kind, although Mr. Cordray’s actions drew rather less press than a lawsuit filed months later by Attorney General Andrew M. Cuomo of New York. Mr. Cuomo, whose skill with the tactical leak, news release and the lawsuit is considerable, tends not to work closely with his fellow state attorneys general, say two officials from states other than Ohio.

Attorneys general are perhaps more successful at extracting large sums of money than in changing corporate behavior. A Goldman Sachs or Marsh & McLennan, to this view, tends to see such settlements as a cost of doing business.

“The settlements are large, but the changes in behavior don’t seem to be that large,” said Daniel C. Richman, a former federal prosecutor and professor at Columbia Law School. “These targets have massive amounts of money to pay off and continue on their merry way.”

Raise this criticism to Mr. Cordray and he nods in agreement.

“In an ideal world, if the S.E.C. had done its job, that would be much better,” he said. “Our settlements make up for the losses fractionally.”

As it happens, Mr. Cordray now faces a more existential threat. Legal challenges to corporate misbehavior are not proven electoral gold. This year, Ms. Coakley, a Democrat, fell to Republican Scott Brown in a race to fill the Senate seat of Edward M. Kennedy.

And polls show Mr. Cordray running behind in his race with Mr. DeWine. He’s no natural glad-hander — he apologizes when he realizes he has automatically extended his hand at a luncheon. More paradoxical, he finds himself at risk of being identified with “them,” which is to say the establishment that Ohio residents view as having failed them.

Again, he shrugs. He is not inclined to blame voters for his troubles.

“Politicians are kind of like adolescents, always looking in the mirror and assuming that’s what people see,” he says. “But there’s a great anxiety out there, a great unease about our future. Most people are hurting, and they don’t have the time to pay attention to us.”

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