It appears 2013 is starting off much like 2012. To ring in the new year we get two major settlements involving large banks to whitewash piles of fraud and other illegal behavior by America’s largest financial institutions. While most of the country was busy fretting about the ridiculous ruse of the fiscal cliff, the current administration quietly slipped in yet another “landmark” settlement for huge piles of illegal foreclosures. In this case the government has decided to settle with our largest banks for $8.5 billion over rampant foreclosure abuses which stemmed from the robo-signing scandal. In the same week we also learn that Bank of America, the poster child for everything wrong with our banking system, will settle claims by Fannie Mae for mortgage repurchases and other issues resulting from all the garbage loans it sold to the taxpayer-backed GSE. In this case, Bofa will pay $10 billion to Fannie to call it “all good”. Of course, as expected, neither settlement involves any criminal prosecutions nor any admission of wrongdoing by banks or their executives.
If this sounds bad, it’s actually worse than it sounds. For those who aren’t invovled with the day-to-day morass of corruption in America’s largest financial institutions, it might come as a surprise that the latest settlement with the largest banks over foreclosure abuses comes after the Office of the Comptroller of the Currency gave it’s blessing to a bogus review of the banks’ foreclosure misdeeds. Most of the people actually reviewing the forclosure files and abuses were paid by you guessed it….the banks! No surprise that they had a tough time finding all the borrowers that were kicked to the curb with foreclosure documents and practices that range from egregiously unethical to blatantly illegal. The foreclosure reviews were supposed to be independent, but they were anything but. What’s utterly astounding is that the Federal Reserve and Office of the Comptroller of the Currency have the gall to call the foreclosure reviews independent. As a reminder, this is just one example of the kind of blatant forgery we are talking about.
For a deeper understanding of just what the settlements are about, Barry Ritholtz has a link to the transcript from litigation involving Syncora Guarantee vs EMC Mortgage and Ambac Assurance vs EMC Mortgage. The transcript provides a blow-by-blow account of the practices exposed by whistleblowers about due diligence on mortgages before they were securitized. There are plenty of juicy examples of underwriting gone wild like an assistant manager at a California McDonalds restaurant getting approved for a loan while claiming $8500 per month of stated income.
19 Q. So as I understand it, through the team leads you received directions that the clients wanted the underwriters to ignore certain defects in loans?
24 A. That is correct.
Q. Turn to paragraph 17 of your affidavit, which is on page 5.It says here in the first line: “Clayton supervisors would often inform the due diligence underwriters that the purchasers wanted the underwriters to approve loans that often did not satisfy the underwriting guidelines.”
11 A. That is correct.
12 Q. Is the same statement true for Watterson Prime?
14 A. Yes.
15 Q. Was this a practice which was pervasive at Watterson and Clayton?
17 A. Yes.
18 Q. Across all clients?
19 A. Yes.
The math of the settlement is a slap in the face for affected borrowers, amounting to a few thousand dollars as estimated by Gretchen Morgensen. As a cost of doing business, it’s certainly a win-win for the banks. As Morgensen notes, the numbers are a far cry from the possible penalties outlined last year by regulators when the reviews began. The penalties also pale in comparison to the damage inflicted on borrowers, as American’s suffered $trillions in losses to net worth and home equity resulting from the housing collapse. Borrowers can be comforted by the fact that banks are now reporting record profits due to all the government stimulus efforts to save the
economy banks. And here’s the real kicker. That $8.5 billion dollar figure being touted by criminal conspirators regulators is actually less than it might seem. How so? As Gretchen Morgenson explains, this settlement, like many of the other supposed “landmark” judgements, is tax deductible for the offenders in question as a cost of doing business of course. How thoughtful of our regulators omit that little tidbit of disclosure.
The latest fraud settlements involve a whose who of Washington Wall Street insiders like Promontory Financial, Covington & Burlington and Arnold & Porter. The revolving door of executives between these firms, the banks they worked for, and government agencies is enough to make your head spin. It’s all part of the complex maze of craven regulators, conflicts of interest as far as the eye can see and untold millions in profits for those who are connected enough to cash in. For all that talk about this administration being tough on mortgage fraud, you certainly wouldn’t know it judging by criminal referrals or prosecutions. It seem all the negotiations were pre-packaged shams, and the American public has not been offered a seat at the table for any of the negotiations.
As America’s mortgage borrowers and homeowners are learning, the bailouts were not designed to help American families or troubled borrowers. Those were the lies sold to the American public so a corrupted Congress and Administration could approve the massive bailouts to the lords of finance. As Matt Taibbi details in his latest expose, Secrets and Lies of the Bailout, the resulting cartel of banks we have in the United States is now a zombie Ponzi-like confidence scheme where Americans are being strip-mined to subsidize otherwise involvent and corrupt Wall Street firms. While bailing out a host of criminals on the taxpayer dime, the goverment has managed to punish community banks and savers. At the same time it has made lying on behalf of our corrupt banks official U.S. government policy.
“To listen to the bankers and their allies in Washington tell it, you’d think the bailout was the best thing to hit the American economy since the invention of the assembly line. Not only did it prevent another Great Depression, we’ve been told, but the money has all been paid back, and the government even made a profit. No harm, no foul – right?
It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyperconcentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it. The result is one of those deals where one wrong decision early on blossoms into a lush nightmare of unintended consequences. We thought we were just letting a friend crash at the house for a few days; we ended up with a family of hillbillies who moved in forever, sleeping nine to a bed and building a meth lab on the front lawn.”
When the music stops for the next crash, I guess we’ll just have to use a few of those trillion dollar coins.