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Richard (R.J.) Eskow

By Richard (RJ) Eskow
Senior Fellow, Campaign for America’s Future

If you’re a banker who bought your estate with the millions you made from mortgage fraud, relax. The Justice Department isn’t looking for you. But if you’re an illegal immigrant who’s working on that banker’s estate, look out. The Department of Justice is ignoring your boss and devoting most of its resources to catching you.

And the Justice Department’s “mortgage fraud” unit doesn’t prosecute bankers. It protects them.

Joe Nocera of the New York Times contrasts the legal treatment that was given to one high-flying borrower with that received by Angelo Mozilo, CEO of the fraudulent lender Countrywide. But if stories like this one are bad, the numbers are even worse.

If you also take a qualitative look at some of the federal government’s other well-publicized mortgage fraud efforts, like its “Stop Fraud” website, the picture becomes pretty stunning — if not downright infuriating. (more…)

Zach Carter

Ryan Grim

By Zach Carter
Economics Editor, AlterNet; Fellow, Campaign for America’s Future

And

By Ryan Grim
Senior congressional correspondent for the Huffington Post

WASHINGTON — Despite mounting evidence of big banks committing serious fraud in the foreclosure process, the U.S. Senate eliminated $35 million in legal aid to homeowners trying to keep their homes.

The fund was wiped out in order to meet government spending caps advocated by Sens. Jeff Sessions (R-Ala.) and Claire McCaskill (D-Mo.), but will likely end up costing taxpayers much more in the long run, as wrongful foreclosures burn through the balance sheets of Fannie Mae and Freddie Mac. The slashing of the foreclosure-assistance fund is just one casualty of Washington’s increasing bipartisan push to cut spending across the board.

The $35 million fund was created by the Wall Street reform bill signed into law by President Barack Obama in July, but the Senate never took the additional necessary step of appropriating the money. Even if it had been appropriated, Senate Majority Leader Harry Reid (D-Nev.) last week gave up on passing a budget for next year in the face of Republican opposition to earmarks.

Although the dollar amount is tiny in comparison with other federal housing programs, legal aid funding is a critical to the foreclosure relief effort. Without hiring a good lawyer, it is extremely difficult for borrowers to successfully defend their homes against banks — even when banks are committing clear-cut violations.

Recent reports suggest severe, nationwide problems with the mortgage system. A survey of 96 attorneys found that banks started foreclosure proceedings on 2,500 borrowers who were negotiating a loan modification. The survey was conducted by the National Association of Consumer Advocates and the National Consumer Law Center. (more…)

Zach Carter

Zach Carter
Economics Editor, AlterNet; Fellow, Campaign for America’s Future

Despite escalating outrage over rampant foreclosure fraud, the Federal Reserve now appears ready to eviscerate a key mortgage regulation in an effort to spare banks the losses from their own wrongdoing. Even as bank executives preposterously claim to have wronged nobody in the foreclosure process, they’re pushing hard to unwind the only serious federal rule that protects borrowers from predatory loans and improper foreclosures. As if the last decade of abuse wasn’t bad enough, banks are once again mobilizing to screw borrowers in the pursuit of epic bonuses. And once again, it appears that the Federal Reserve has become an accomplice to this nationwide mortgage scam.

This week, top mortgage officers from the nation’s largest banks are telling the Senate Banking Committee that they aren’t kicking the wrong people out of their homes. This is simply false. Problems at mortgage servicers have been going on for years, long before banks got into trouble for illegally robo-signing foreclosure documents. People are kicked out of their homes without cause in the United States every day. If the top executives at America’s largest banks don’t know this fact, they lack the competence needed to run their organizations.

Law firms that work with troubled borrowers are jam-packed with horror stories about foreclosures caused entirely by banks, not borrowers. Families who never miss a payment come home to an eviction notice, or a thug breaking down their door.

But it’s even more common for borrowers to find themselves in trouble because their bank engaged in blatantly predatory lending. There is only one serious federal remedy for predatory lending, and the Fed is now knowingly trying to gut that remedy in order to help banks avoid losses from their own fraud. The remedy is called rescission, and it works like this:

If a bank failed to make key consumer protection disclosures about a mortgage, the borrower can demand that all of the interest and closing costs on the loan be refunded. Equally important, the bank must also stop all foreclosure proceedings and give up its right to foreclose. Once the bank gives up its right to foreclose, the full amount of the mortgage, minus interest and closing costs, becomes due. This isn’t a free lunch for the borrower, especially when the value of her home has declined dramatically, but it’s better than nothing, and it does impose real costs on banks. (more…)

Zach Carter

Zach Carter
Economics Editor, AlterNet; Fellow, Campaign for America’s Future

Foreclosure fraud is ruffling a lot of feathers on Wall Street, and while the full scope of losses remains unclear, even major banks are now acknowledging that this is a multibillion-dollar disaster, not just a set of minor paperwork headaches.

So how bad will it get for Wall Street? There are several disaster scenarios in which the housing market simply shuts down, where the potential losses for Wall Street are simply incalculable. But even situations that do not directly rip apart the basic functioning of the mortgage system could be enough to shut down one or more big banks, creating serious trouble for the financial system, and a major test of the recent Wall Street reform bill.

JPMorgan Chase loves using its research department to push its political agenda, and the bank is currently characterizing the foreclosure fraud outbreak as a set of “process-oriented problems that can be fixed.” That puts them in the rosy optimist camp for this crisis, and they’re projecting a total of $55 billion to $120 billion in losses for the entire industry, spread out over a few years.

But take a look at the analysts’ methodology. The actual scope of losses gets drastically larger if you just change a few arbitrary assumptions.

JPMorgan’s analysts look at about $6 trillion in mortgages issued between 2005 and 2007 — this is the height of the bubble, but it excludes plenty of lousy loans issued in 2003, 2004 and 2008. They then estimate defaults of $2 trillion and losses of $1.1 trillion on those defaults. (more…)

Zach Carter

By Zach Carter
Economics Editor, AlterNet; Fellow, Campaign for America’s Future

A lot of frequently credible publications have been pumping out drivel lately blaming borrowers for the ever-widening foreclosure fraud scandal. Fortune Magazine has the latest of these blame-the-borrower narratives. It would be nice to be able to dismiss this kind of nonsense as mere journalistic laziness, but at this point in the crisis, blaming the borrowers is an act of willful ignorance.

The Fortune scribe resorting to this grotesque journalistic vice is Fortune’s Duff McDonald. McDonald’s argument? Pretty lousy. He openly acknowledges that he hasn’t done his homework:

“I find it very hard to process the notion that the onslaught of foreclosures in this country does not have more to do with a failure of conservative financial planning than with some insidious criminality by lenders . . . . I’m amazed that the country has congealed into the belief that every single borrower who signed a mortgage document has an escape hatch that somehow puts blame on their lender when they can’t pay their debts . . . . I am at a loss to understand how so many individual homeowners signing loan documents for debt they could ultimately not afford were somehow the victims of a crime.”

Four years after the subprime meltdown began, Duff McDonald still hasn’t bothered to investigate fraud in the selling of mortgages. I’m getting pretty tired of writing this statement: In 2004, the FBI warned of an “epidemic” in mortgage fraud, 80 percent of which is committed by lenders. There was an entire Congressional hearing devoted to fraud at Washington Mutual. Loan officers and mortgage brokers are perfectly capable of falsifying a borrower’s loan application, and they’re perfectly capable of telling a borrower they’re getting a great 30-year fixed-rate mortgage while selling them a subprime mortgage with exploding payments, adding a zero to the value of the house, or anything else. That’s fraud, it’s illegal, it happened all the time, and it was perpetrated by handsomely paid financial professionals. (more…)

Mike Lux

By Mike Lux
Author, “The Progressive Revolution: How the Best in America Came to Be”

I was heartened to see a group of Democratic Senators write this great letter to Ben Bernanke and administration officials on the foreclosure fraud issue. They came out strongly for several important things regarding homeowners’ rights, and they framed the issue perfectly: this is not some minor technical problem regarding some mislaid paperwork in a few cases, this is fraud by bankers on a massive scale. Along with this letter, check out this great op-ed by Sen. Whitehouse on the subject. Once again, in keeping with the pattern Digby first reported, this is all Democrats doing the right thing, and not a single Republican lifting a finger to help. Another bit of great news: Elizabeth Warren echoed the Senators message, calling the foreclosure issue “big and serious”. This puts the administration clearly on the side of the idea that this problem isn’t just a minor paperwork hassle, and that it matters a lot.

This foreclosure fraud issue is yet another domino falling, where once again the big Wall Street banks are wreaking havoc with our economy in order to come away with outlandish profits at the expense of poor and middle-class people. These huge banks are so powerful both politically and economically that they haven’t worried about playing by the rules and following the law. Their thinking is that because they are too big to fail, and too influential in Washington, they can just get Washington to change the rules as they go along and bail them out whenever needed. They were shocked that their sneak attack at changing the mortgage rules got exposed by progressives and vetoed by the President, but they almost certainly still assume they can eventually get the rules changed to save them from their own fraud one more time.
This issue is example number one on why progressives need to remain focused on cleaning up Washington and standing up to the special interests who still act like they own the place. And our message has been getting through. Check out this striking new poll from MoveOn.org:

• An overwhelming 84% of voters polled, including 80% of Republicans and 81% of Independents, believe voters have a right to know who is paying for ads for a particular candidate. (more…)

Zach Carter

Zach Carter
Economics Editor, AlterNet; Fellow, Campaign for America’s Future

There are plenty of reasons why the foreclosure fraud crisis sweeping the nation’s housing market is an economic disaster. Banks are charging borrowers illegal fees, kicking the wrong people out of their homes and even hiring thugs to illegally break into houses. But the fundamental scam is much worse than these shameful acts. Fraud in the foreclosure process conceals a second, more massive fraud: the astonishing levels of mortgage fraud perpetrated by subprime lenders during the housing bubble. These frauds don’t just expose big banks to epic losses, they expose bigwig bankers to prison time.

Clearly, we’re dealing with a lot of different frauds here. Tomorrow, I’ll detail one of the smaller-bore problems with foreclosure fraud: providing cover for illegal fees that lenders charge to troubled borrowers. But today I’ll discuss a much different and much bigger scandal. During the housing bubble, banks falsified documents on a massive scale in order to issue as many toxic subprime loans as possible. This was straightforward mortgage fraud, and the current wave of fraud in the foreclosure process is covering it up.

In 2004, the FBI sounded the alarm about an “epidemic” in mortgage fraud. This was right at the beginning of the real subprime explosion — things got much worse as the housing bubble inflated. What’s more, according to the FBI, 80 percent of mortgage fraud is committed by lenders.

Bankers and mortgage brokers didn’t just make reckless loans to borrowers who couldn’t afford them. They also illegally falsified documentation in order to push borrowers into loans they could not afford. This was not a con perpetrated by irrational poor people attempting to live beyond their means — it was committed by perfectly rational lenders, who knew they could make a handsome profit by selling these garbage mortgages off to investors.

We know about how these frauds were incentivized at specific lenders thanks to anecdotes collected banks that actually went under during the crisis. When Washington Mutual collapsed in September 2008, it was one of the largest banks on the West Coast, with $350 billion in assets. It wasn’t a small-time specialty shop operating off the grid — it was a regulated bank, overseen by the Office of Thrift Supervision, subject to standard consumer protection regulations and federal anti-fraud statutes. Yet the bank engaged in systematic, knowing fraud which its executives allowed to continue unpunished. As Sen. Carl Levin, D-Mich., emphasized in a hearing this April, the company even rewarded some of its employees who committed fraud by promoting them. (more…)

Zach Carter

By Zach Carter
Economics Editor, AlterNet; Fellow, Campaign for America’s Future

Anybody looking for a primer explaining why the current foreclosure fraud issue is a major systemic risk for the financial system should check out Mike Konczal’s new post for the Roosevelt Institute. I’m going to try and simplify it even further here, and present the only serious avenue available to solve the problem.

Three parties stand to lose big. The most obvious is homeowners—they’re being slapped with enormous, illegal fees invented by fraudulent documents, and frequently being illegally exiled from their homes.

Next are the mortgage servicers. These are the mortgage industry’s debt collectors, and their mere existence often creates huge conflicts of interest that have made the foreclosure mess much harder to clean-up. The dominant servicers are owned by megabanks—Bank of America, JPMorgan Chase, Wells Fargo, Citibank and GMAC control the vast majority of this work. A massive loss for a mortgage servicer means a massive loss for a massive bank.

Mortgage servicers are supposed to collect payments and negotiate with troubled borrowers in order to maximize the returns to investors. Who are these investors? Hedge funds and banks that bought mortgage-backed securities during the housing bubble.

The basic job of a mortgage servicer is to collect payments from borrowers, and pass them on to investors. If borrowers stop paying, servicers have to make those payments to investors out of their own pocket—until they actually foreclose. At foreclosure, the servicer gets to recoup its costs. So in many cases, servicers have a very strong incentive to cut whatever corners they can in order to recoup their costs and avoid forwarding more money to investors (This is only part of the story—since the servicers are megabanks, the other assets of the servicer bank can give the servicer wing an incentive to stall the foreclosure process like crazy—more on that in another post).

The point is, in many cases, servicers have a clear incentive to cut corners to speed up the foreclosure process, and stand to lose a lot of money if they don’t. (more…)

Zach Carter

Zach Carter
Economics Editor, AlterNet; Fellow, Campaign for America’s Future

Unbelievably, the U.S. Senate has approved legislation making it easier for banks to get away with foreclosure fraud. The bill would make it much harder for consumer advocates to show that banks are engaging in fraud, bailing out megabanks who cut corners in order to boost bonuses and slap borrowers with massive, illegal fees. The political fight between big banks and troubled homeowners is on, and President Barack Obama must take a side.

If President Obama signs this legislation into law, he’s sending a clear signal that his administration stands ready to bailout the banks again, whatever the consequences for American homeowners. The new legislation is a clear attempt to provide legal cover to GMAC’s robo-signing scandal, and should be firmly opposed by Obama.

Banks are running into big trouble in foreclosure courts right now because they have kept shoddy mortgage records for years in order to cut costs and boost bonuses. Those records are so bad that banks routinely cannot prove that they have the legal right to foreclose on the homes they attempt to foreclose on. That’s a major problem, because banks have repeatedly demonstrated that they cannot be trusted to figure out their own foreclosures for themselves. They’ve foreclosed on people who haven’t missed any mortgage payments, and even on borrowers who have fully paid off their loans.

So banks and their lawyers have been fabricating documents, forging signatures, and lying to judges in order to go through with foreclosures. All of this is fraud– especially when committed systematically, en masse by large corporations and their clients. It gets even worse when banks try to use fraudulent documents to slap borrowers with thousands of dollars in illegal fees. (more…)

Zach Carter

Zach Carter
Economics Editor, AlterNet

I’ll have plenty to say about the escalating foreclosure fraud scandal later this week. For now: This is a big, big deal. It isn’t a clerical error, it’s an aggressive attempt to slap borrowers with thousands of dollars in illegal fees for the luxury of being foreclosed on. And what’s more, this absurd, shady business was priced into the entire mortgage securitization scheme from the get-go. Banks have been fudging their documentation for years in order to cut costs and score higher profits from securitization—the business model has relied on this corner-cutting since day one of the housing boom.

The good news is that borrowers can use this epic fraud to defend themselves. If a bank can’t prove that it has the right to foreclose on a borrower by showing the proper documentation to a judge, then it doesn’t have the right to foreclose. This is a tremendous opportunity for neighborhood advocates. Make them pony up the docs, it might just save your home. The problem isn’t restricted to GMAC—foreclosure counselors and attorneys talk about the issue of forged or destroyed documentation all the time, and we already know that JPMorgan Chase and Countrywide (now Bank of America) have major documentation problems. Including GMAC, that’s three of the biggest players in every aspect of the mortgage market.

If courts actually follow the law here, we get the best of both worlds—big losses for Wall Street on their predatory loans, and borrowers who get to stay in their homes (mortgage-free, at that). The only question is whether these mortgage losses prove so severe that Wall Street banks come back begging to the government for another bailout. If so, it’s an opportunity to do what should have been done in 2008—break up these financial monsters into smaller creatures that don’t require bailouts when they fail. (more…)