Posted by kevin on October 28, 2013 under Foreclosure Blog | 
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.
Posted by kevin on October 19, 2013 under Foreclosure Blog |
Usually, we talk about foreclosure and events surrounding the fallout caused by the mortgage crisis.
In the last few weeks, however, we have lived through the drama of the government shutdown. Now, you could say that the culprits were the Tea Party activists for pushing the envelop, or Harry Reid and the President for refusing to negotiate any significant changes to Obamacare. I say that there is enough blame to go around with some finger pointing to be directed to the media as well.
One thing is sure. The country is divided- by political party for sure; but also, more or less, by economic group, by age, by race and, it appears, by neighborhoods.
A Pew Research Center report called “The Rise of Residential Segregation by Income” concluded that the share of lower-income and upper-income households who live mainly among other households of their income class increased significantly from the 1980 census to the 2010 one. The percentage of upper-income households who live in majority upper-income census tracks doubled, from 9% to 18%, while the percentage of lower-income households who live in majority lower-income household increased significantly, from 23% to 28%.
The more important backstory here is the by now much-discussed contraction of the middle class. This is not just the result of the last few years’ Great Recession, but has been happening for decades. In 1980, middle-income households (those with income from 67% to 200% of the national median) included 54% of U.S. households, but by 2010 they were down to 48%.
With less households at middle income, there are more census tracts (local areas with about 4,200 people) that are either majority lower income (less than 67% of median) or majority upper-income (more than 200% of median income). From 1980 to 2010, the portion of census tracts that did not have majority middle income climbed from 15% to 24% (up from 15% to 18% for lower income and from 3% to 6% for upper income).
At the threshold points of 67%/200% of median income, in 2010 lower income was defined as less than $34,000 of household income, and upper income as $104,000 and above. Although these dollar amount may or may not fit your personal definition of these economic classes, the Pew Center conducted multiple analyses using different thresholds to define lower- and upper-income households, and the basic finding reported here of increased residential segregation by income was consistent regardless of which threshold were used.
At this point you may be saying, well of course, people live in neighborhoods they can afford, so well-off people will live in expensive neighborhoods and the less well-off will live in more modest ones. True, but what is meaningful is the trend towards greater residential segregation, and particularly the sharpness of the trend. We’ve seen a widening income gap between the rich and the poor, and now understand that this has come with fewer of us living in mixed-income neighborhoods, and more of us living among people like us economically. This fast-increasing isolation of the economic classes from each other can have profound consequences for the nation’s social and political cohesiveness. Our national motto—“E Pluribus Unum,” “out of many, one”—is being sorely tried by our deep and seemingly increasing political divides. Adding a deepening economic divide only increases the challenge of working together constructively.
Posted by kevin on under Foreclosure Blog |
In our last episode, JP Morgan Chase and the Feds were talking in terms of an $11 billion settlement of the various claims against JP Morgan. Yesterday, the Wall Street Journal reported that JP Morgan settled with the FHFA for $4 billion based on misrepresentations concerning the quality of mortgages underlying bonds sold to Fannie and Freddie. Bloomberg has just come out with a story that says that JP Morgan is in the process of finalizing a $13 billion settlement with the Feds (includes the $4 billion to FHFA) which will cover all Federal claims (except possible criminal action against individuals) and all claims being raised by NY AG Eric Schneiderman.
Nothing in either report indicates whether and how much of the settlement will be used for loan modifications.
JP Morgan took a $7.2 billion charge against 3d quarter earnings relating to legal issues. Clearly, the bank is trying to rapidly put its legal problems and the money associated therewith behind it so that it could move forward. The Bloomberg piece says that not only has Jaime Dimon, the CEO of JP Morgan, and Eric Holder, the US Attorney General.
We can expect confirmation of the settlement with all of its terms within the next few days.
Posted by kevin on under Foreclosure Blog |
About a month ago, I wrote to you about the governments investigation of JP Morgan Chase (“JPMC”) based on the sale of Bear Stearns mortgage backed securities (“MBS”).
Well, the financial news has been abuzz with stories about JPMC. Yesterday, it was reported that JPMC was trying to settle all of its criminal and civil cases with the government for $3 billion. The bulk of that settlement was to be attributed to the sale of MBS. In regard to MBS, the issue was predominately whether JPMC (or Bear or Washington Mutual- all bought by JPMC) violated its warranties and representations concerning the quality of the loans put into securitized trusts. The issues were: (1) was that enough money; (2) what claims would be part of the settlement; and (3) whether JPMC would have to admit culpability.
Well, the talks have moved pretty fast in the last day. It appears that the AG, Eric Holder, rejected the $3 billion offer. The number that is being floated around is $11 billion, but that includes claims of FHFA relating to claims that JPMC misled Fannie and Freddie, and claims brought by the NY AG. From that $11 billion, $7 billion would be in cash, and $4 billion would be available to JPMC borrower (I represent a few of those). Discussions are said to be very fluid at this time, because there is not a meeting of the minds about what claims are included or whether JPMC must admit culpability There may be a deal; there may not be a deal. We shall soon find out
Interesting. The feds are going after JPMC for putting bad loans into securitized trusts and lying about it. I have always said that the two parties who got screwed during the mortgage run up of the 2000’s were homeowners and the investors in securitized trusts. If a crappy loan finds it’s way into a securitized trust, it was usually because the originating lender offered a loan to someone who could not afford to repay it. That is predatory lending. So, violation of warranties and representations goes hand in hand with predatory lending. By settling, even without an admission of guilt, JPMC is tacitly agreeing that it misled investors. So, aren’t they also admitting that they engaged in widespread predatory lending?
What about borrowers? They either lost or are in the process of losing their homes and savings. Who has taken care of them? Well, I guess you can say that the proposed settlement of $11 billion puts $4 billion on the table, in the form of modifications, to borrowers. But, what have the courts done for borrowers? Not much. In New Jersey, there are only a handful of cases (I can think of only two offhand) that deal with predatory lending and neither were in the context of the current mortgage crisis. Since 2007, well over 100,000 people have lost their homes in New Jersey, yet I am not aware of one case since that time that found a loan issued in NJ to be predatory. There are some bankruptcy cases that have dealt with this issue, and there is a NJ case that says that modification agreements are subject to the Consumer Fraud Act, but I am not aware of any reported cases that hold that a loan issued in NJ was predatory during the current mortgage crisis. How can that be? Certainly, NJ loans were not subjected to a higher underwriting standard. One day, this will all come to light. What can you do? Discuss this issue with your elected officials. Demand an even playing field.
