Elizabeth Warren Has It Right

Carmen Reinhart: “No Doubt. Our Pensions Are Screwed.”
http://www.zerohedge.com/news/2013-04-11/carmen-reinhart-no-doubt-our-pensions-are-screwed

Editor’s Comment: It is nothing less than an insult to our intelligence. As the walls crumble around the myth of securitization, the banks are stepping up efforts — in concert with the agencies that are supposed to regulate them — to prevent people from doing simple math. The truth is out. The attempt to sweep illegal mortgages under the t able failed with the foreclosure reviews and now they are trying to do it with a settlement that says if you lost your house and possessions and it was taken illegally you can have an average of $1,000 in damages.

In appearing before Congressional committees the Federal Reserve and the OCC admitted that most of the foreclosures were illegal — which means they never should have happened. Elizabeth Warren asked a simple question. If you found all this illegal activity and you have an actual list with actual homes and actual names on them why won’t you notify the homeowners of your findings. After all you are a public agency. And the AGENCY invoked claims of privacy on behalf of the banks.

If that doesn’t turn everything we know about our constitution and our laws on its head, I don’t know what would. We have a right to this information especially if we are the homeowners who were victims of the false scheme of securitization. But even even if we didn’t lose a home and we “only” paid TARP and other bailout dollars giving banks 100 cents on the dollar despite their obvious culpability in selling crap to institutional investors, undermining our pension and retirement system, and sticking the homeowners with homes worth less than half of the appraised value used at the so-called loan closing.

I think lawyers should file an action under FOIA (Freedom of Information Act) and get those reports and contact the homeowners to tell them that their lives were turned upside down by a foreclosure that was illegal, performed by an actor who merely pretended to be the creditor on a debt that no longer existed, in which the pretender received a free house on a false”Credit bid” without ever investing a penny into the house or the loan.

The damage claims from the existing list, which was cut short by the “Settlement” for $1,000 for each homeowner, are not curtailed at all by the actions of the OCC and the Federal Reserve. It is like a vein of gold miles wide and hundreds of feet thick sitting on the surface of the earth. Any PI or malpractice attorney would make ten times their current income if they investigated this opportunity. This is easy money once you start digging — which is exactly what stopped the OCC review and other programs like it.

Fed Argues that Mortgage Abuses are Trade Secrets, Meaning Institutionalized Fraud
http://www.nakedcapitalism.com/2013/04/fed-argues-that-mortgage-abuses-are-trade-secrets-meaning-institutionalized-fraud.html

Foreclosure Review Program’s Regulators Take Pounding From Elizabeth Warren, Sherrod Brown
http://www.huffingtonpost.com/2013/04/11/foreclosure-review-program-warren-brown_n_3062126.html

Warren grills bank regulators over bungled foreclosure review
http://money.cnn.com/2013/04/11/news/economy/warren-foreclosure-hearing/

Foreclosure Review Report Shows That the OCC Continues to Bury Wall Street’s Bodies
http://www.thenation.com/article/173749/foreclosure-review-report-shows-occ-continues-bury-wall-streets-bodies

1 in 3 Foreclosures Have Bank Errors to Blame — AOL Real Estate
http://realestate.aol.com/blog/2013/04/11/bank-errors-foreclosures/

14 American Cities Getting Buried By Foreclosures
http://www.businessinsider.com/us-cities-with-most-foreclosures-2013-4

Too Big To Jail: Thousands Protest Around Nation Against “Settlement” Proposed by Obama and AG’s

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Protesters Demonstrating in Front of Foreclosure Fraud Settlement Meeting in Chicago

By: David Dayen, firedoglake.com

Protesters have gathered outside a meeting taking place in Chicago today between officials with the Obama Administration and some state Attorneys General or members of their staff, aimed at reaching agreement on a low-ball settlement with leading banks over foreclosure fraud.  The proposed settlement would give homeowners a pittance in exchange for a broad release of liability from prosecution for the banks.

About eighty members of various community and faith groups in Illinois, including national groups like MoveOn.org, National People’s Action and The New Bottom Line, have gathered outside the Chicago O’Hare Hilton Hotel. They are holding a press conference there and protesting the proposed settlement. Later in the day, the protesters plan to visit the local offices of Illinois AG Lisa Madigan, who is on the executive committee which negotiated the settlement, and the Obama for America 2012 campaign headquarters.

The protesters object to the low dollar value of the settlement, estimated at $20-$25 billion, when there is currently $700 billion worth of negative equity – money owed on mortgages less than the value of the home – in America. They also object to the fact that there has been no meaningful investigation into the depths of foreclosure fraud by the Department of Justice or any federal regulator. Further, they oppose a broad release of civil and/or criminal liability for the banks for their conduct at all levels of the housing market. [EDITOR’S NOTE: SOMEHOW THE $700 BILLION FIGURE HAS BEEN ACCEPTED. I did the math. The figure is ten times that at $7 trillion].

The proposed deal will get circulated to the banks today. Many of the holdout AG offices did not send a representative to the Chicago meeting. But they have the information on the settlement, and for a variety of reasons the events of the next 24 hours are seen as consequential. There are even rumors, according to Rep. Brad Miller (D-NC), of an announcement on the settlement appearing in tomorrow’s State of the Union Address. “They have not said anything to us on the State of the Union, but there’s a sense that they may do something,” added Sen. Sherrod Brown (D-OH), an opponent of the settlement on a conference call today.

Miller ticked off a number of unknowns surrounding the settlement. “What investigation has there actually been? What claims are being released?” Miller Asked. “Where did this $20 billion number come from for damages? What mortgages does this apply to? Does it apply to securitized mortgages that the banks don’t really own? Will they be able to pass on the losses for their own misconduct? Which homeowners get relief? If it’s just a dollar figure that the banks have to hit, will they pick the most expensive houses for relief and increase resentment against those who get the breaks in America?”

Brown, Miller and the coalition arguing for a “fair settlement” want a thorough investigation, with the inclusion of the Consumer Financial Protection Bureau (at this point not a part of this settlement). “It’s hard to know what a meaningful settlement would look like when we don’t have full disclosure,” Brown said. “Instead of a thorough investigation and criminal prosecutions, we’re talking about not much more than a slap on the wrist. The banks are not just too big to fail, they’re too big to jail.”

Justin Ruben of MoveOn.org, a key coalition partner, cited new polling showing that found that 70% of Americans believe the banks have not been investigated enough on their foreclosure practices, and that 60% of those polls would be less likely to support the President for re-election if he gave the banks a sweetheart deal. By contrast, the President would gain support if he announced a real investigation into Wall Street’s practices. MoveOn has forwarded a petition asking for an investigation, and has acquired over 360,000 signatures.

Banks to Pay AG Settlement with Investor Money: Deja Vu

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EDITOR’S NOTE: Adding insult to injury it appears as though the great settlement will fall far short of the tobacco settlement, at a fraction of the nominal cost and with other people’s money used to pay for what should be criminal fines. Investors are increasingly going vocal about supporting principal reduction (or correction), but this is no license to use the money in the pool to finance a $25 billion settlement for wrongdoing by the Banks, not investors.

This settlement is a farce. Securitization was a farce. The mortgages were a farce. The foreclosures were a farce. The auctions were a farce. The credit bids at auction were a farce. And the evictions were a farce. They were and are all based upon upon fraudulent conduct and representations, inducing investors to lose money the moment they bought the bogus mortgage bonds and inducing the  borrowers to lose money the moment they bought the bogus loan products.

Somehow the Banks have kept the narrative going that foreclosures are good and that they were clear out the inventory of homes that are empty and offered for sale. That is a living lie. The foreclosures are false and each additional foreclosure adds to the mounting title problems as well as being a vehicle for shifting and transfer of wealth from those who earned it to those who simply want it.

Sherrod Brown: Banks Shouldn’t Be Able to Pay Foreclosure Fraud Settlement With Investor Money

By: David Dayen

I brought up one of my chief problems with the possible foreclosure fraud settlement, the fact that AGs have already tried a settlement that mandated banks to deliver loan modifications to borrowers, and they flat-out didn’t do it. But Sen. Sherrod Brown offers up another problem. It turns out that, under the settlement, the banks could be allowed to pay out penalties using mortgage capital – basically the assets of investors, not anything that would harm the banks themselves. I wrote about this a couple weeks ago:

To be clear, a substantial number of investors would support principal reductions. They’ve come out and said so. They often end up in a better place with them than with foreclosure sales. But they would not have any say in the matter, according to this proposal, and the banks would get off scot-free for their fraudulent activities. The losses in the system would incur to the homeowners and the investors […] not only is the $19-$25 billion figure inadequate to deal with the massive foreclosure crisis or the extent of the fraud perpetrated, but banks would have a way to wriggle out of some of the charges.

It’s good to see Brown pick up on this in his letter to the lead negotiators on the settlement, which I’ve put in full below. In addition to stating that the sum total for the settlement is inadequate, Brown criticizes this creative accounting where the banks wouldn’t even pay the penalty. Here’s an excerpt:

There are reports that the settlement could permit servicers to receive credit for writing down the value of mortgage-backed securities (MBS) owned by investors, without requiring servicers to reduce principal on the mortgages and second liens that they own. Ohio’s public employee pension funds have significant investments in MBS, and therefore have significant interest in the terms of the settlement. The reported settlement terms would allow banks to write down the investments of many of my constituents, without sacrificing anything. And, depending upon the scope, any settlement could potentially preclude these funds from pursuing actions to recoup more than $457 million in losses, allegedly due to credit ratings agencies improperly rating MBS. Such terms are unacceptable.

It’s a nice bit of framing to say that teachers and law enforcement officers and first responders would be penalized for Wall Street malfeasance. But as I’ve said, and as Brown said in this letter, investors often make out better with principal reduction than with a foreclosure sale at a massive loss. That’s not the issue. It’s that a penalty should actually hurt. And this won’t hurt a single servicer; they’ll be settling with someone else’s money. The settlement could rectify this simply by saying that the servicer must pick up the cost of the principal reduction and make the investors whole. But that probably won’t happen.

Brown also mentions that “State attorneys general tried this approach in a 2008 settlement with servicer Countrywide—it did not work.” Indeed! This is the point I’ve been trying to make. The settlement path is well-traveled and always unsatisfactory.

I would expect stakeholders to raise the volume on all of these issues in the next few days. They should stick to a few simple points. This settlement does almost nothing for most homeowners, the release of liability damages the rule of law, we tried this kind of settlement before and the banks just ignored their responsibilities, and the banks want to pay the penalty with someone else’s money.

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