Bank of America- Jury Weighs In

Posted by kevin on October 28, 2013 under Foreclosure Blog | Comments are off for this article

This past week, a jury in Manhattan found Bank of America (BOA) liable for mortgage fraud. BOA, as successor to the infamous Countrywide Home Loans, was found to have fudged its system for detecting bad loans which were sold to investors. They even had a name for the scheme- High Speed Swim Lane- acronmym “Hustle”. 57% of the Swim Lane loans defaulted, and the government claimed that 43% of the loans were defective or fraudulent. In addition, the jury found Rebecca Mairone, who oversaw the program, liable. Just an aside- when you call a loan program “Hustle”, I think that you are flirting with danger.

Now, these loans were originally Countrywide Loans which were sold to investors through Fannie and Freddie. BOA bought Countrywide in 2008 for $2.5 billion. The Hustle program ended just prior to the purchase. The case is entitled US ex rel O’Donnell v. BOA, et al because the case stems from a whistleblower action brought by former Countrywide executive, Edward O”Donnell. The penalty phase of the case will be going forward. The government is looking for a shade under $1 billion in damages. Because fraud is involved, the Judge could tack on punitive damages and fees.

This case is significant for two reasons: first, we are talking about a jury verdict. What we commonly see is a settlement usually way before trial to reduce costs to the bank and , more importantly, with no admission on the part of the bank of liability or wrongdoing. Second, the verdict is against the bank and an executive. It puts a face on the wrongdoing. Moreover, it will have a strong chilling effect on bank executives who are actively involved in hustling the public and even those that just look the other way when wrongdoing is rampant.

The case was brought under the FIRREAA. This was a statute that was promulgated during the Savings & Loan crisis of the late 80’s and early 90’s. The benefit is that the statute of limitations is 10 years. BOA may take the case up on appeal to challenge the applicability of that statute more so to attack the long statute of limitations.

Clearly, a victory for the investors and possible all consumers since we have a jury verdict on fraud. How NJ judges will consider this fraud when dealing with borrowers is another question. Borrowers and investors are two sides of the same coin. If borrowers did not get the predatory and often fraudulent loans, investors would not be sold those same loans. It is rather incongruous that courts blame the banks for the loans vis-a-vis the investors, but blame the borrowers for taking the bad loans as opposed to the originating lenders for granting them.

NY AG goes after JP

Posted by kevin on October 2, 2012 under Foreclosure Blog | Comments are off for this article

Eric Schneiderman, the New York AG appointed by Obama to co-chair the federal/state probe into the 2008 mortgage meltdown (called, I believe, the Residential Mortgage Backed Securities Working Group), filed suit against JP Morgan Chase alleging widespread fraud by the company’s Bear Stearns unit in the sale of mortgaged backed securities.

You may recall that Schneidermann was a real carnivore who threatened to go after not only the big banks but the securitized trusts. Together with AG Biden in Delaware and the tough women AG’s in California, Massachusetts, Illinois and Arizona, Schneiderman was standing up to the big banks on improper/illegal servicing practices. Then, the President appointed Schneiderman to the chair of the Working Group, the $25 Billion settlement went through, the servicer/banks are still conning the public into thinking that they are effecting meaningful loan modifications, and nothing much happened on the litigation front until yesterday. Forgive me if I appear cynical, but isn’t there an election in about a month.

Cynicism aside, this appears to be a positive event. It is alleged that Bear Stearns, which was bought by JP Morgan, defrauded investors by packaging and selling mortgages that they knew had a high likelihood of defaulting. Damages to investors are in the billions of dollars. Schneiderman is seeking unspecified damages. If Schneiderman aggressively litigates this matter, a substantial recovery could be in the cards. More importantly, a positive result can lead to more actions be AG’s and investors. One can only hope. On the other hand, if we see a settlement for pennies on the dollar, similar to the $25 Billion settlement, we can conclude that the government just wants to sweep this continuing mess under the carpet. Time will tell.

The federal statute of limitations is 5 years, and most state statutes of limitations for these types of offenses is six years. So time is running out. Let’s hope that the Working Group and the various AG’s “man up” and go after the banksters.