If the top five mortgage servicers begin to abuse bond investors under the foreclosure settlement write-downs, the attorneys general would consider some protections, according to Iowa AG Tom Miller.
Miller faced down banking executives and analysts during a panel at the REthink Symposium Thursday. The $25 billion settlement signed in March forces servicers to meet roughly $10 billion in principal reductions, which could swell higher because in some instances the full dollar written down will not be credited.
Servicers will get full credit for reducing principal on loans they hold on their own portfolio but receive 45 cents for every dollar written down on mortgages held in private securities.
“To try principal reduction in a targeted way and find out if it works is good for the housing market,” Miller said. “We know what (the banks’) plans are. Two have said they wouldn’t do write-downs on private securities. But we could have some discussions about something to reassure investors.”
Let’s be clear why there’s a mortgage deal: the banks broke the law. Several laws in fact, in ways that appear criminal as well as civil. Limiting their liability is the only reason the banks did a deal.
In this post I’m going to look at what the banks could be held liable for; how much liability “their” money persuaded law enforcers to ignore will be the next post. But one important kind of peace has not been bought: criminal. So as I detail the wrong doing exposed by the deal, I highlight the crimes our law enforcers seem to allege the bankers committed. After all, a liability release isn’t simply what it says, it’s what law enforcers do with their remaining freedom to act. If crimes were committed, and indictments don’t follow, the release is much broader than its text.
A close read of the complaint and the related language that precedes the releases (see Exhibits F and G) reveals:
The consent agreements the bailed-out bankers (B.O.B.s), the feds and the states are largely as had been promised. One big surprise, however, is that the B.O.B.s would now be allowed to systematically overcharge borrowers and steal their homes. Seriously. Who cares about $1 million or $5 million penalties if horrible damage can be inflicted without punishment?
To see what I’m talking about, you need to look at Exhibit E-1. (It’s in all the consent agreements; here’s Chase‘s.) Exhibit E-1 is a 14 page table titled “Servicing Standards Quarterly Compliance Metrics.” That is, it’s a table that details what, precisely, law enforcers will check to make sure that the B.O.B.s are meeting the very pretty servicing standards in the deal. (See Exhibit A)
(Note: You may want to print out table E-1 while reading this, or at least keep it open in another browser window; what I have to say may be hard to believe and you’ll want to be able to double check that I’m telling you the truth.)
Now, the table doesn’t come right out and say, ‘we, the federal and state governments of the United States of America do hereby bless the institutionalization of servicer abuse,’ but it should. To understand why, you need to keep your eye on how the table’s columns are defined. For most issues, the critical columns are C “Loan Level Tolerance for Error” and D “Threshold Error Rate.” Later I’ll talk about the problems in Column F, the “Test Questions.”
The never ending settlement… because those in DC are doing their best to make sure their bankers are A-OK.
Reuters-
Mortgage-backed securities investors who are convinced that banks intend to shift the cost of the $25 billion national mortgage settlement onto their shoulders are “evaluating their legal options,” according to Chris Katopis, executive director of the Association of Mortgage Investors (and a former clerk on the District of Columbia Circuit Court of Appeals). The private investors, as I’ve reported, are outraged at the terms of the settlement, which sets no limit on the percentage of securitized mortgages the settling banks — Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial — are permitted to modify to reach their $17 billion target for reducing the principal balance owed by struggling borrowers. Mortgage-backed noteholders believe the deal terms encourage banks to write down investor-owned first liens, rather than second lien mortgages in bank-owned portfolios. That incentive, they say, shifts the cost of the deal from the banks to mortgage-backed bondholders.
Their argument is gaining traction. The New York Times editorialized Sunday on the bank-friendly details of …
The surprising tale that I will attempt to pen in this blog entry has a very familiar cast of characters; the Obama Administration, the Housing Bubble, “Toxic Mortgages”, and Too Big To Fail “TBTF” Banks among others. While the headline of TBTF banks in a $25bil mortgage settlement is known to many, the underlying details of the settlement are less known and quite appalling when you pull back the covers.
The wounds on past and present homeowners are still fresh from the housing crisis. As Jonathan Laing points out in this weekend’s Barron’s cover story, “five million of the country’s 76million mortgage holders have lost their homes to foreclosure or lender ordered short sales since 2006, and an estimated 14million more own more on their homes than their properties are currently worth. In all, some $7.4 trillion in homeowners’ equity has been destroyed according to Mark Zandi…”
Cries for Accountability
While blame deserves to be cast upon numerous parties for the housing bubble, Americans have rightly called for accountability on the TBTF banks. Accountability for what? Among other faults, robo-signing became prevalent among TBTF banks as they forged mortgage documents in order to ensure proper paperwork was done to foreclose on properties.
Details of the $25bil Settlement (in the words of HUD) & Public Lauding
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION
GARY STUBBS, Plaintiff,
v.
BANK OF AMERICA, BAC HOME LOANS SERVICING, LP, and FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendants.
EXCERPT:
Plaintiff has alleged facts making it plausible that Fannie Mae was in fact the secured creditor at the time of the foreclosure and has alleged that no assignment to Fannie Mae was filed prior to the time of sale as required by O.C.G.A. § 44-14-162(b). Therefore, based on the allegations in the amended complaint, BAC evaded the most substantive requirements of Georgia’s foreclosure statute in that (1) it was not the secured creditor entitled to foreclose despite providing a notice letter affirmatively representing it was the creditor; and (2) it failed to file the assignment of the security deed to the secured creditor in the county deed records prior to the foreclosure. See O.C.G.A. § 162(b); Weems v. Coker, 70 Ga. 746, 749 (Ga. 1883); Cummings v. Anderson, 173 B.R. 959, 963 (Bankr. N.D. Ga. 1994).3 The Court accordingly DENIES the motion to dismiss Plaintiff’s claim for wrongful foreclosure based on failure to comply with Georgia foreclosure law.
For whatever reason scribd download is not permitting this to be downloaded.
Last week was a big one for the banks. On Monday, the foreclosure settlement between the big banks and federal and state officials was filed in federal court, and it is now awaiting a judge’s all-but-certain approval. On Tuesday, the Federal Reserve announced the much-anticipated results of the latest round of bank stress tests.
How did the banks do on both? Pretty well, thank you — and better than homeowners and American taxpayers.
That is not only unfair, given banks’ huge culpability in the mortgage bubble and financial meltdown. It also means that homeowners and the economy still need more relief, and that the banks, without more meaningful punishment, will not be deterred from the next round of misbehavior.
A: When the deal documents punt on contentious issues, merely agreeing to agree later.
Sadly, that’s what this “deal” does. This “deal” is a hybrid contract and term sheet, with all the crucial, operational aspects of compliance unresolved. A smallish to-be-dealt-with-later item is the timing for implementing the servicing standards. The biggie is the Work Plans; those have not been negotiated at all.
Yes, part of compliance has been finalized; the metrics, and the basic enforcement structure. But it’s not enough to have metrics; you also need processes for gathering the metric data and computing the results. Similarly you need more than a structure for enforcement; you need how-to details. The not-yet-existing Work Plan will cover all that. Worse, the negotiations will happen while the clock is ticking on the deal.
March 15 (Bloomberg Law) — The $25 billion mortgage settlement between lenders and state attorneys general won’t help nearly as many people as its touted to, Neil Barofsky, the former Special US Treasury Department Inspector General for the Troubled Asset Relief Program (TARP), tells Bloomberg Law’s Lee Pacchia. He’s joined by Matthew Stoller, a fellow at the Roosevelt Insitute, who says the government and banks delayed filing details of the settlement to give investors less time to challenge the deal in court.
I’ve been going over the mortgage settlement documents over the past few days – a lot has been released, with many implications. There is plenty to criticize. Subprime Shakeout has a great summary, and David Dayen has done a wonderful job going through the nitty gritty. Abigail Field has a spectacular review of the problems with the servicing standards. I’ll make a few criticisms of my own below. But I think the most interesting parts of the document release were the HUD Inspector General reports on the five banks and the DOJ complaint. What these prove is what we’ve always known – the law enforcement community knew exactly what these banks were doing. DOJ simply chose not to prosecute. There was intent to defraud, fraud, and frankly, according to HUD.
In fact, it’s not clear that the past tense is the correct tense to use. The Wells Fargo report is particularly interesting on that last point. Take it away, HUD OIG (italics are mine).
At the time of our review, affidavits continued to be processed by these same signers, who may not have been qualified, and these signers may not have adequately verified certain figures because they accessed a computer screen of data showing a compilation of figures instead of verifying the data against the information through review of the books and records kept in the regular course of business by the institution.
The nation’s five biggest banks will pay $25 million to the New York attorney general’s office to settle certain claims related to the use of Mortgage Electronic Registration Systems.
The agreement with New York Attorney General Eric Schneiderman releases Bank of America ($8.84 0.35), Citigroup ($35.21 -1.24), JPMorgan Chase ($43.58 0.19), Wells Fargo ($33.37 0.04) and Ally Financial from certain claims of robo-signing foreclosure documents.
Schneiderman sued Bank of America, JPMorgan and Wells Fargo, as well as MERS, in early February. The AG’s office said in the complaint the banks “created the MERS system as an end-run around the property-recording system.”
MERS is not involved in the agreement, and a company spokeswoman declined to comment.
Does anyone know the judge that is going to look over this case? If so, please forward their name or post in the comment section.
Business Week-
An audit of foreclosure practices at the Federal Housing Administration’s five largest mortgage servicers uncovered widespread failures to ensure the banks had proper legal documents.
According to reports released today by the inspector general of the Department of Housing and Urban Development, banks including Bank of America Corp. and Wells Fargo & Co. (WFC) violated the federal False Claims Act when they improperly foreclosed on homes insured by the FHA.
The audits, spurred by revelations in 2010 that mortgage servicers were seizing homes using improper paperwork, were forwarded to the Department of Justice last year. They formed part of the basis for a $25 billion settlement with five banks filed in U.S. court in Washington yesterday.
“I believe the reports we just released will leave the reader asking one question: How could so many people have participated in this conduct?” the inspector general, David Montoya, said in a statement accompanying the reports. “The answer: simple greed.’”
Top law enforcement officers from most of the 50 states gathered last week in Washington, D.C., for the annual spring meeting of state attorneys general, where the hot topic was the $25 billion foreclosure settlement finally filed in federal court on Monday.
More than a dozen state and federal officials who crafted the deal, which resolves charges that banks wrongfully foreclosed on homeowners, say it is the most ambitious of its kind ever reached, far outstripping the complexity and political machinations of the decade-old case against the giant tobacco companies.
But instead of high-fives and fist-bumps, officials, who had sniped at each other — and at the deal — for the better part of a year, tried to come to grips with the aftermath. The deal had to overcome disagreements between the banks and government officials, and between liberal Democrats and Tea Party-backed Republicans.
“It was like the Battle of Verdun, every square inch was fought over,” said George Jepsen, the Connecticut attorney general, of the 16 months of negotiations between federal officials, state attorneys general and five major financial institutions — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial (formerly GMAC) — over the foreclosures and a host of other nasty “servicing” abuses.
Five of the nation’s biggest banks have agreed to pay New York a total of $25 million to settle claims brought by New York State Attorney General Eric Schneiderman regarding their use of a private national mortgage electronic system.
The agreement, filed in federal court Tuesday, resolves certain monetary claims by the New York attorney general against Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co.
The agreement preserves the New York attorney general’s right to sue for damages suffered by consumers …
In a conference call on Feb. 14, Secretary Shaun Donovan of the Department of Housing and Urban Development promised about 90 mortgage-backed bondholders that the $25 billion national mortgage settlement would include a 15 percent cap on the number of investor-owned loans that the five settling banks would be permitted to modify, according to the three participants in the call.
Donovan made the promise in response to MBS investor concerns that banks would shift the cost of the settlement onto their shoulders by writing down the principal in securitized mortgages, rather than in the loans banks hold in their own portfolios. He had already said in a press conference that the settlement would provide incentives for the settling banks — Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial — to reduce the principal in their own portfolio loans, estimating that “a relatively small share, in the range of 15 percent” of the write-downs would be in investor-owned mortgages. In the Feb. 14 call with bondholders, according to the three participants, Donovan went a step farther, assuring MBS investors that the written settlement agreement would limit the percentage of investor-owned loans the banks were permitted to modify.
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