ABC-

An Eyewitness News and California Watch investigation found that families across California were being sued after they lost their homes to foreclosure.

Mina Shahab lives in a cramped apartment in Woodland Hills. She shares it with her brother who is stricken with cancer. A few years ago, she took out two loans and bought a spacious four-bedroom home in Northridge.

It was the American dream for the native of Iran who came here looking for freedom. But she lost her job, and then lost her home to foreclosure.

“I love this country, and seeing this happen to its citizens is very painful,” she said.

[ABC]

Business Week-

Bank of America Corp. (BAC) and Mortgage Electronic Registration Systems Inc. lost a bid to dismiss a lawsuit claiming they shortchanged Texas counties out of uncollected mortgage filing fees.

“The plaintiffs have brought sufficient evidence to allow the case to go forward,” U.S. District Judge Reed O’Connor in Dallas said. O’Connor threw out several claims in the lawsuit at the end of a court hearing today.

O’Connor allowed the counties to seek damages and an injunction limiting future filings by MERS. He rejected county allegations that MERS was filing false liens, which would have allowed the counties to seek $10,000 for each contested filing.

[BUSINESS WEEK]

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING
MOTION AND, IF FILED, DETERMINED
IN THE DISTRICT COURT OF APPEAL
OF FLORIDA
SECOND DISTRICT

ROBERT J. BOYE and CARMEN B.
FORGIONE,

Appellants,

v.

CITIMORTGAGE, INC., n/k/a
NATIONSTAR MORTGAGE, LLC,

Appellee.
________________________________
Opinion filed May 23, 2012.
Appeal from the Circuit Court for Lee
County; James R. Thompson, Judge.
Robert J. Hynds of The Hagen Law
Firm, Fort Myers, for Appellant.
Ryan J. Weeks of Albertelli Law,
Tampa, for Appellee.
KELLY, Judge.

The appellants, Robert J. Boye and Carmen B. Forgione, challenge the
final summary judgment of foreclosure entered in favor of Citimortgage, Inc., n/k/a
Nationstar Mortgage, LLC. Because genuine issues of material fact remain regarding
appellants’ affirmative defense of lack of notice, we reverse and remand for further
proceedings.

On March 4, 2009, Citimortgage filed a complaint against appellants
seeking foreclosure, alleging that appellants had not made any payments on their
mortgage since September 1, 2008. Appellants filed an answer and affirmative
defenses asserting, in part, that Citimortgage had not provided them with proper notice
of the default prior to accelerating the debt as required under the mortgage. Appellants
also sought discovery from Citimortgage requesting numerous documents relating to
the loan including any items showing a declaration of default. Thereafter, Citimortgage
filed a motion for summary judgment. While the motion for summary judgment was
pending, appellants filed a motion to compel discovery based on Citimortagage’s failure
to produce the items requested, specifically the letter of default. The trial court granted
appellants’ motion to compel. When Citimortgage failed to produce the letter, appellants
filed a motion for sanctions as well as a motion for continuance of the trial. After a
hearing, the trial court denied both of appellants’ motions and entered a final judgment
of foreclosure.

“A movant is entitled to summary judgment ‘if the pleadings, depositions,
answers to interrogatories, admissions, affidavits, and other materials as would be
admissible in evidence on file show that there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment as a matter of law.’ ” Estate of
Githens ex rel. Seaman v. Bon Secours-Maria Manor Nursing Care Ctr., 928 So. 2d
1272, 1274 (Fla. 2d DCA 2006) (quoting Fla. R. Civ. P. 1.510(c)). The party moving for
summary judgment has the burden to prove the absence of a genuine issue of material
fact. “Where a defendant pleads affirmative defenses, the plaintiff moving for summary
judgment must either factually refute the affirmative defenses by affidavit or establish
their legal insufficiency.” Bryson v. Branch Banking and Trust Co., 75 So. 3d 783, 785
(Fla. 2d DCA 2011). This court must view “every possible inference in favor of the party
against whom summary judgment has been entered.” Estate of Githens ex rel.
Seaman, 928 So. 2d at 1274 (quoting Maynard v. Household Fin. Corp. III, 861 So. 2d
1204, 1206 (Fla. 2d DCA 2003)). If the record raises even the slightest doubt that an
issue might exist, that doubt must be resolved against the moving party and summary
judgment must be denied. Nard, Inc. v. DeVito Contracting & Supply, Inc., 769 So. 2d
1138, 1140 (Fla. 2d DCA 2000).

Here, the record reflects genuine issues of material fact regarding whether
appellants had been provided with the notice of default. At the summary judgment
hearing, counsel for Citimortgage acknowledged that it did not have a copy of the notice
and although Citimortgage introduced testimony that its records indicated the notice
was sent, there was no evidence to establish that the notice was mailed to the proper
address. See Star Lakes Estates Ass’n, Inc. v. Auerbach, 656 So. 2d 271 (Fla. 3d DCA
1995) (reversing summary judgment of foreclosure and stating that although proof of
mailing normally raises a rebuttable presumption that mail was received, such
presumption only arises when there is proof that mail is being sent to the correct
address). Because Citimortgage failed to prove that it provided appellants with the
requisite notice of default as required by the mortgage, it did not meet its burden of
proof on summary judgment and is not entitled to judgment as a matter of law. See
Konsulian v. Busey Bank, N.A., 61 So. 3d 1283 (Fla. 2d DCA 2011); Frost v. Regions
Bank, 15 So. 3d 905, 906-07 (Fla. 4th DCA 2009). Therefore, we reverse the final
judgment of foreclosure and remand for further proceedings.

Reversed and remanded.

WHATLEY and MORRIS, JJ., Concur.

These banks and their bait and switch games.

Don’t TRUST them!

Raw Story-

For Oriane and Norman Rousseau, their hopes of keeping the modest California house that had been their dream home ended with a loud noise while Oriane was in the kitchen.

She rushed to the bedroom, unsure of what had happened. But when the part-time nurse smelled sulphur, she understood. Opening the door Oriane saw her husband on the bed with his head wrapped in a blanket. “I saw blood on the wall. I lifted up the comforter a little and then I lost it,” Oriane told the Guardian in an interview.

Norman’s suicide on May 13 was the worst possible end for the Rousseau’s nightmarish experience of America’s foreclosure crisis. But it was a long, surreal and twisted journey to get there. It began in May 2009, when Wachovia, now part of Wells Fargo, told the Rousseaus they had missed a mortgage payment on their home in Newbury Park, an hour outside Los Angeles.

Even though the Rousseaus had made the payment – and had the receipt to prove it –

[RAW STORY]

For immediate release

The Federal Reserve Board on Wednesday announced the availability of a new video that explains how borrowers who believe they were financially harmed during the mortgage foreclosure process in 2009 and 2010 can apply for a free, independent foreclosure file review.

Both English and Spanish versions of the video are available for viewing on the Federal Reserve Board’s website and on YouTube .

The brief announcement reminds borrowers that, as part of the enforcement actions taken in April 2011 by federal banking regulatory agencies, they may be eligible to receive compensation if the independent review finds evidence of direct financial injury due to servicer error. Borrowers are eligible for a review if their primary residence was in the foreclosure process in 2009 or 2010 and their mortgage loan servicer is participating in the Independent Foreclosure Review. The list of participating servicers can be found at: www.IndependentForeclosureReview.com or at www.federalreserve.gov/consumerinfo/independent-foreclosure-review.htm

The deadline to request a foreclosure review is July 31, 2012. For more information, borrowers may call 888-952-9105 or visit www.IndependentForeclosureReview.com .

For media inquiries, call 202-452-2955.

source: http://www.federalreserve.gov/newsevents/press/other/20120523a.htm

These are all potential whistle-blowers!

Karma…

Forbes-

Add it to the growing list of people going after JPMorgan Chase. Employees are suing the bank over the $2 billion trading loss that they say hurt their retirement plans.

A lawsuit filed on behalf of JPMorgan employees says their retirement accounts fell in value after news broke about the trading loss, Reuters reports. That’s because the plan holds JPMorgan shares which have dropped 18% since the loss was announced on May 10.

[FORBES]

Via: Max Gardner

Are You PSA Literate?

.

We are pleased to present this guest post by April Charney.

If you are an attorney trying to help people save their homes, you had better be PSA literate or you won’t even begin to scratch the surface of all you can do to save their homes. This is an open letter to all attorneys who aren’t PSA literate but show up in court to protect their client’s homes.

First off, what is a PSA? After the original loans are pooled and sold, a trust hires a servicer to service the loans and make distributions to investors. The agreement between depositor and the trust and the truste and the servicer is called the Pooling and Servicing Agreement (PSA).

According to UCC § 3-301 a “person entitled to enforce” the promissory note, if negotiable, is limited to:

(1) The holder of the instrument;

(2) A nonholder in possession of the instrument who has the rights of a holder; or

(3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to section 3-309 or section 3-418(d).

A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

Although “holder” is not defined in UCC § 3-301, it is defined in § 1-201 for our purposes to mean a person in possession of a negotiable note payable to bearer or to the person in possession of the note.

So we now know who can enforce the obligation to pay a debt evidenced by a negotiable note. We can debate whether a note is negotiable or not, but I won’t make that debate here.

Under § 1-302 persons can agree “otherwise” that where an instrument is transferred for value and the transferee does not become a holder because of lack of indorsement by the transferor, that the transferee is granted a special right to enforce an “unqualified” indorsement by the transferor, but the code does not “create” negotiation until the indorsement is actually made.

So, that section allows a transferee to enforce a note without a qualifying endorsement only when the note is transferred for value.? Then, under § 1-302 (a) the effect of provisions of the UCC may be varied by agreement. This provision includes the right and ability of persons to vary everything described above by agreement.

This is where you MUST get into the PSA. You cannot avoid it. You can get the judges to this point. I did it in an email. Show your judge this post.

If you can’t find the PSA for your case, use the PSA next door that you can find on at www.secinfo.com. The provisions of the PSA that concern transfer of loans (and servicing, good faith and almost everything else) are fairly boilerplate and so PSAs are fairly interchangeable for many purposes. You have to get the PSA and the mortgage loan purchase agreement and the hearsay bogus electronic list of loans before the court. You have to educate your judge about the lack of credibility or effect of the lifeless list of loans as the Uniform Electronic Transactions Act specifically exempts Residential Mortgage-Backed Securities from its application. Also, you have to get your judge to understand that the plaintiff has given up the power to accept the transfer of a note in default and under the conditions presented to the court (out of time, no delivery receipts, etc). Without the PSA you cannot do this.

Additionally the PSA becomes rich when you look at § 1-302 (b) which says that the obligations of good faith, diligence, reasonableness and care prescribed by the code may not be disclaimed by agreement, but may be enhanced or modified by an agreement which determine the standards by which the performance of the obligations of good faith, diligence reasonableness and care are to be measured. These agreed to standards of good faith, etc. are enforceable under the UCC if the standards are “not manifestly unreasonable.”

The PSA also has impact on when or what acts have to occur under the UCC because § 1-302 (c) allows parties to vary the “effect of other provisions” of the UCC by agreement.

Through the PSA, it is clear that the plaintiff cannot take an interest of any kind in the loan by way of an “A to D” assignment of a mortgage and certainly cannot take an interest in the note in this fashion.

Without the PSA and the limitations set up in it “by agreement of the parties”, there is no avoiding the mortgage following the note and where the UCC gives over the power to enforce the note, so goes the power to foreclose on the mortgage.

So, arguing that the Trustee could only sue on the note and not foreclose is not correct analysis without the PSA.? Likewise, you will not defeat the equitable interest “effective as of” assignment arguments without the PSA and the layering of the laws that control these securities (true sales required) and REMIC (no defaulted or nonconforming loans and must be timely bankruptcy remote transfers) and NY trust law and UCC law (as to no ultra vires acts allowed by trustee and no unaffixed allonges, etc.).

The PSA is part of the admissible evidence that the court MUST have under the exacting provisions of the summary judgment rule if the court is to accept any plaintiff affidavit or assignment.

If you have been successful in your cases thus far without the PSA, then you have far to go with your litigation model. It is not just you that has “the more considerable task of proving that New York law applies to this trust and that the PSA does not allow the plaintiff to be a “nonholder in possession with the rights of a holder.”

And I am not impressed by the argument “This is clearly something that most foreclosure defense lawyers are not prepared to do.”?Get over that quick or get out of this work! Ask yourself, are you PSA adverse? If your answer is yes, please get out of this line of work. Please.

I am not worried about the minds of the Circuit Court Judges unless and until we provide them with the education they deserve and which is necessary to result in good decisions in these cases.

It is correct that the PSA does not allow the Trustee to foreclose on the Note. But you only get there after looking at the PSA in the context of who has the power to foreclose under applicable law.

It is not correct that the Trustee has the power or right to sue on the note and PSA literacy makes this abundantly clear.

Are you PSA literate? If not, don’t expect your judge to be. But if you want to become literate, a good place to start is by attending Max Gardner’s Mortgage Servicing and Securitization Seminar.

April Carrie Charney

Thursday, May 24, 2012
10:00 AM – 12:00 PM
538 Dirksen Senate Office Building

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

will meet in OPEN SESSION to conduct a legislative hearing on “The Responsible Homeowner Refinancing Act of 2012.” The witness will be: Mr. Bill Emerson, CEO, Quicken Loans, Inc. Additional witnesses may be announced at a later date.

Add To My Calendar (vCal)

Witnesses

Panel 1

• Mr. Bill Emerson
  CEO
  Quicken Loans, Inc.
• Mr. Christopher Papagianis
  Managing Director
  e21
• Mr. Moe Veissi
  2012 President
  National Association of Realtors
• Dr. Mark Zandi
  Chief Economist
  Moody’s Analytics

May 24th The Responsible Homeowner Refinancing Act of 2012
538 Dirksen Senate Office Building
10:00 AM – 12:00 PM

Why aren’t we surprised?

American Banker-

A federal judge dismissed portions of the Securities and Exchange Commission’s case against two former executives of imploded bank Indymac on Monday.

U.S. District Judge Manuel Real of California’s Sourthern District dismissed SEC civil charges stemming from five securities filings against former Chief Executive Officer Michael Perry and Chief Financial Officer A. Scott Keys.

The two men presided over the subprime mortgage giant’s now-notorious collapse. The SEC alleged that the men repeatedly misled investors about IndyMac’s need to raise new capital and eliminate dividends, among other things.

[AMERCIAN BANKER]

Abigail C. Field-

President Obama’s reelection campaign hinges on a big lie. Obama claims that Romney represents the 1% and Obama represents everybody else. But the key part of that claim is a lie: Yes, Romney represents the 1%, but so does Obama. His policy choices on housing and banking make that clear.

Before I sum up how, here’s the thing that’s really important: Obama thinks he’s fooling you, and enough other people, that he’ll get re-elected despite policies that entrench banker power and hurt everyone else. See, Obama thinks you will be blinded by the made-for-Hollywood, up-by-his-bootstraps narrative and think that ‘surely, given where he came from, he must stand with me instead of the greedy bankers.’

Thankfully, some of the people coping with the devastating consequences of Obama’s housing and bank policy decisions know better, and that’s starting to show in the polls. But too many are still fooled; Obama’s still too comfortable that only his words matter. We need to make him understand that we will not vote for him–we’ll stay home or vote for Romney or a write in–if he doesn’t back his words with real action.

[REALITY CHECK]

image: obamalies.net

via Simon Johnson-

Jamie Dimon is CEO of JP Morgan Chase, one of the largest and most powerful banks in the world. Because the bank is “too big to fail”, it enjoys the protection of US taxpayers. As such, Mr. Dimon has a responsibility to safeguard the bank’s financial strength – not just for the sake of his shareholders, but for the public good.

Mr. Dimon failed in that duty. He personally approved a very risky trading strategy that not only lost billions of dollars for the firm but also had the potential to destabilize the world’s financial markets.

Jamie Dimon risked depositors’ money and all of our futures. Despite this, Jamie Dimon still sits on the board of directors of the Federal Reserve Bank of New York – an institution charged with supervising JP Morgan Chase and other Wall Street banks.

The fox is guarding the henhouse. It is entirely unacceptable to have Mr. Dimon involved in the governance of the New York Fed, an organization that oversees his activities, decisions, and potential losses.

Mr. Dimon also leads lobbying campaigns to maintain the right to carry out the kind of risky trading that recently lost billions and continue to put the world’s economy at risk.

Jamie Dimon should immediately resign his post at the New York Federal Reserve Bank. If he will not, then the Federal Reserve System should take whatever action is needed to remove him immediately from that position.  

Both Treasury Secretary Tim Geithner and former Head of the Congressional Oversight Panel for the Troubled Asset Relief Program (and Senate candidate) Elizabeth Warren have called for Jamie Dimon to resign his New York Fed board position. To date, Mr. Dimon has given no indication that he will relinquish this post.  

If thousands of Americans stand up to Mr. Dimon and demand his resignation, the Federal Reserve System will be forced listen. Ignoring this request would undermine the legitimacy and effectiveness of the entire Federal Reserve.

by Paul Kiel and Cora Currier
ProPublica, May 22, 2012, 12:26 p.m.

Answers to homeowners’ questions about the Independent Foreclosure Review.The administration’s website for the foreclosure prevention program. Provides an FAQ, homeowner examples, and other tools to see whether you might qualify for the program.A list of HUD-approved housing counseling agencies nationwide.Tips for homeowners from the Federal Trade Commission.These rules lay out how mortgage servicers are supposed to conduct the program.A finance and economics blog that provides news and metrics on the state of the housing market.

States have diverted $974 million from this year’s landmark mortgage settlement to pay down budget deficits or fund programs unrelated to the foreclosure crisis, according to a ProPublica analysis. That’s nearly forty percent of the $2.5 billion in penalties paid to the states under the agreement.

The settlement, between five of the country’s biggest banks and an alliance of almost all states and the federal government, resolved allegations that the banks deceived homeowners and broke laws when pursuing foreclosure. One part of the settlement is the cash coming to states; the deal urged states to use that money on programs related to the crisis, but it didn’t require them to.

ProPublica contacted every state that participated in the agreement (and the District of Columbia) to obtain the most comprehensive breakdown yet of how they’ll be spending the funds. You can see the detailed state-by-state results here, along with an interactive map. Many states told us they’ll be finalizing their plans in the coming weeks. We’ll be updating our breakdown as the results come in.

What stands out is that even states slammed by the foreclosure crisis are diverting much or all of their money to the general fund. In California, among the hardest hit states, the governor has proposed using all the money to plug his state’s huge budget gap. And Arizona, also among the worst hit, has diverted about half of its funds to general use. Four other states where a high rate of homeowners faced foreclosure during the crisis are spending little if any of their settlement funds on homeowner services: Georgia, South Carolina, Wisconsin, and Maine.

Overall, only about $527 million has been earmarked for new homeowner-focused programs, but that number will go up. A number of large states 2014 in particular New York, Nevada, Illinois, and Florida 2014 have indicated they’ll be dedicating substantial amounts of the funds to consumer programs, but haven’t yet produced a final breakdown.

Iowa Attorney General Tom Miller, who led the coalition of attorneys general who negotiated the deal, argued that only a very small portion of the settlement was being diverted and it will “overwhelmingly” benefit homeowners. The centerpiece of the settlement is a requirement that the banks earn $20 billion in “credits” by helping homeowners in various ways 2014 from reducing principal on underwater homes to bulldozing empty ones. Because the system awards only partial credit for certain actions, Miller said the settlement would bring more than $20 billion in benefits to consumers 2014 he estimated $35 billion. Critics contend those sorts of numbers far overstate the benefits to consumers, because the banks can claim credit for some activities that were already routine.

The banks will only pay $5 billion in actual cash penalties under the agreement. The largest chunk, $2.5 billion, goes to the states’ attorneys general, while about $1 billion goes to the federal government. $1.5 billion will be sent to borrowers who lost their homes to foreclosure during the crisis in the form of $2,000 payments.

Compared with the billions going to consumers, Miller contended, $1 billion going to states’ general funds was minimal. It was always expected that the states would divert some of the money to their general expenditures, he said.

But when announcing the deal, state and federal officials said the states’ $2.5 billion would mainly fund housing counselors and legal aid organizations. Studies have shown homeowners stand a better chance of avoiding foreclosure if they get the help of a counselor, and homeowners lack legal representation in the overwhelming majority of foreclosure cases. The money was divvied up among the states according to a formula that took into account how large the states were and how hard they were hit by the crisis.

As you can see from our breakdown, 15 states have so far allocated over half their amounts to consumer-focused efforts. But the uses range widely. In Ohio, $75 million has been set aside to destroy some 100,000 abandoned homes. In Minnesota, the state is setting up a fund to compensate victims of the banks’ foreclosure abuses.

In two of the states most affected by the foreclosure crisis, California and Arizona, the attorneys general had intended to use most of their funds on homeowner-related efforts before the governors intervened.

After California Attorney General Kamala Harris prepared a proposal to spend the money on counselors, lawyers, and other consumer-related efforts, Gov. Jerry Brown released a proposed revised budget last week that used the state’s $411 million for existing housing programs. In other words, the money would just be used to help fill the state’s $16 billion budget deficit. Harris opposes the move, which still must make its way through the state legislature for it to become law.

In Arizona, the attorney general had similar plans. Then state lawmakers and the governor took $50 million of the $98 million coming the state’s way. Although the budget legislation stated that the money should be used to fund departments related to housing and law enforcement, there will be no new spending. Housing advocates are readying a lawsuit to stop the transfer and expect to file in the coming month, said Valerie Iverson, Executive Director of Arizona Housing Alliance.

Several other large states have diverted most or all of the money:

2022 Georgia directed all of its $99 million to programs designed to attract new businesses. A spokesman for the governor said, “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.”

2022 In Missouri, the state legislature used almost all of its $39 million to fund higher education, which had been slated for cuts. The attorney general’s office kept $1 million for hotlines and outreach related to the settlement.

2022 Virginia put the entirety of its $66.5 million into the state’s general fund without restrictions. In March, Democrats proposed a budget amendment that would funnel that money to foreclosure prevention and homeownership programs, but it was voted down.

2022 Wisconsin Governor Scott Walker announced soon after the settlement was finalized that the bulk of it2014roughly $26 million2014would go into the state general fund. Two million went to an economic development fund, including funds for demolition in blighted neighborhoods. Many state Democrats and housing advocates opposed the plan, but failed to block it.

2022 Texas directed its $135 million to the state’s general fund, of which $10 million has been allocated for basic services to low-income Texans. The legislature won’t formally decide what to do with the rest until next January because it meets only once every two years. John Henneberger, co-director of Texas Housers, an affordable housing group, said that in speaking to legislators, advocates had “received no assurances that this money will be used according to the purposes of the settlement.”

ProPublica will continue to track how the funds are being used in the coming months. Check out our breakdown and interactive map for updates.

image: propertymanager.com

Request Testimony from CEO and Top Execs on Implementation of Dodd-Frank Volcker Rule to Prohibit Speculative Trading

Washington, DC (May 22, 2012) – Today, Rep. Elijah E. Cummings, Ranking Member of the House Oversight and Government Reform Committee, and Committee Member Peter Welch sent a letter to Chairman Darrell Issa requesting that the Committee hold a hearing with JPMorgan Chase & Co. Chairman and CEO Jamie Dimon and other executives involved in the trading strategy that resulted in losses exceeding $2 billion.

“Since JPMorgan is the nation’s largest bank holding company,” the Members wrote, “it is important for us to understand the true nature of this trade, as well as the potential for the bank’s losses to grow.  We also need to understand the impact of this specific incident on the financial market and the prevalence of similar trades, as well as its significance for the ongoing implementation of Dodd-Frank and the Volcker Rule.”

Cummings and Welch requested testimony from Dimon, as well as Bruno Iksil, the trader departing JPMorgan’s London office as a result of his involvement in the losses, and Ina Drew, JPMorgan’s former chief investment officer who headed the unit responsible for the trade resulting in the multi-billion dollar loss.

The full letter follows:

May 22, 2012

The Honorable Darrell E. Issa
Chairman
Committee on Oversight and Government Reform
U.S. House of Representatives
Washington, D.C. 20515

Dear Mr. Chairman:

    On May 10, 2012, JPMorgan Chase & Co. disclosed more than $2 billion in losses over a period of six weeks resulting from a trading strategy that its Chairman and Chief Executive Officer, Jamie Dimon, called “poorly constructed, poorly reviewed, poorly executed, and poorly monitored.”   According to recent reports, JPMorgan’s losses may have grown by an additional $1 billion since its original announcement.   Both the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) reportedly have initiated investigations.

Because JPMorgan’s activities have clear implications for the federal government’s efforts to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are writing to request that the Committee hold a hearing with Mr. Dimon, as well as Bruno Iksil, the trader who will be departing JPMorgan’s London office as a result of his involvement in these recent losses, and Ina Drew, JPMorgan’s former chief investment officer who headed the unit responsible for the bank’s problematic trades.

As you know, our Committee played a pivotal role in identifying the lessons of the 2008 financial crisis.  In testimony before the Committee on October 23, 2008, the former Chairman of the Federal Reserve, Dr. Alan Greenspan, famously admitted:

I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms.

JPMorgan’s recent losses exemplify the risks that continue to threaten the stability of our financial system and highlight the critical importance of the Dodd-Frank legislation, which our Committee’s previous investigation helped inform.  Unfortunately, almost two full years after Dodd-Frank became law, many of its provisions have yet to be fully implemented.  For example, the Volcker Rule appears to contemplate trades such as those that led to JPMorgan’s recent losses.  The Volcker Rule prohibits banking entities from engaging in speculative trading activities using deposits, referred to as “proprietary trading.”   Banks are regulated more heavily than securities firms because banks have the benefit of Federal Deposit Insurance Corporation (FDIC) deposit insurance and access to the Federal Reserve’s discount window lending facility.

Since the passage of Dodd-Frank, regulators, including the Federal Reserve, FDIC, the Office of the Comptroller of the Currency, the SEC, and the Commodity Futures Trading Commission, have been engaged in a coordinated effort to implement the Volcker Rule.   On November 7, 2011, a proposed rule was published in the Federal Register.   On April 19, 2012, the Federal Reserve issued a statement clarifying that entities subject to the Volcker Rule would have until July 21, 2014, to “fully conform their activities and investments” to the rule.

JPMorgan has strongly opposed implementation of the Volcker Rule and has sought to create a loophole allowing the bank to engage in proprietary trading practices under the guise of hedging risk.   JPMorgan claims that the transactions generating the recent $2 billion losses were hedging activities that would not have violated the Volcker Rule.   However, the difference between “profit-seeking” and hedging activities is “tied up in the still-incomplete Volcker rule.”   Press reports indicate that JPMorgan executives, including the head of its investment office that suffered the $2 billion loss, “met with Federal Reserve officials and warned that anything but a loose interpretation of the trading ban would hurt the bank’s hedging activities.”
JPMorgan’s characterization of these transactions as hedging activities raises serious questions.  As a former employee in JPMorgan’s corporate risk management department asked in a May 14, 2012, article in American Banker:

[H]ow does a long credit position result in a hedge?  The press reports suggest that it was offsetting a hedge against the loan book, but if that were true the gains and losses on one side should offset those on the other side.  Since that has not happened on a mark-to-market basis, something needs to be explained.

Since JPMorgan is the nation’s largest bank holding company, it is important for us to understand the true nature of this trade, as well as the potential for the bank’s losses to grow.  We also need to understand the impact of this specific incident on the financial market and the prevalence of similar trades, as well as its significance for the ongoing implementation of Dodd-Frank and the Volcker Rule.

On February 9, 2011, you issued a staff report listing a number of regulations you believe “merit additional scrutiny, including the “Dodd-Frank Volker Rule.”   We believe an examination of JPMorgan’s recent activities would be beneficial to determining whether the Volcker Rule is being developed consistent with Congress’ intent.

Thank you for your consideration of this request.

Sincerely,

Elijah E. Cummings                Peter Welch

Ranking Member                    Member

source: http://democrats.oversight.house.gov