Shahien Nasiripour scored a foreclosure-fraud scandal scoop for The Huffington Post on Monday, reporting that audits of the mortgage industry conducted by HUD’s inspector general found five giant banks—Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial—defrauded taxpayers and violated the False Claims Act. HUD sent the findings to the Justice Department, which will now have to decide what to do next.
On Tuesday, Felix Salmon criticized The New York Times and Wall Street Journal for giving big play to the New York attorney general’s renewed interest in mortgage securitization while ignoring the HuffPo scoop. I thought maybe it slipped by the print deadlines. But three days later, those papers have yet to run anything about the news.
What gives?
Nasiripour did report on confidential documents, so I suppose it’s possible other journalists are trying to follow the story but can’t yet get it. But it’s much easier to browbeat sources on these kinds of things once one outlet has gotten the scoop. “The news is already out. Can you at least confirm it?” And Nasiripour got it from four sources.
Indeed, the Financial Times confirmed the news on Tuesday, but it didn’t credit the HuffPo, and it buried it in the second-to-last paragraph of a story on the New York AG story.
The New York Post also confirmed it on Tuesday and was nice enough to credit the Huffington Post, but it stuffed it in the last two graphs of its New York AG story.
Reuters just rewrote Nasiripour’s story, adding no apparent reporting of its own beyond getting some “no comments.”
I don’t understand why this story’s been so ignored by the business press. You’ve got fraud allegations at the too-big-to-fail Wall Street banks. Bank of America and another bank refused to cooperate with investigators. It implicates senior executives at Wells Fargo. The audit is being used by the state AGs as leverage in their settlement negotiations with banks over the foreclosure fraud scandal. And DOJ is considering using them to file civil and criminal charges.
Sounds like a big story to me.
Of course, the bloggers are on it while the mainstream press dithers. Yves Smith is brutal on what it means:
This revelation, that HUD audits of the biggest servicers over a mere two-month period, showed extensive fraud, is proof that abuses were extensive. It also establishes that the effort by Tom Miller to settle the 50 state attorneys general investigation quickly and and the recent “see no evil” Federal consent orders are a cover up. The fact that HUD found extensive misconduct over a similar time frame as the Foreclosure Task Force, which Assistant Treasury Secretary Michael Barr described as a ““11-agency, 8-week review of servicer practices, with hundreds of investigators crawling all over the banks” proves that the latter to be pure regulatory theater. And as we’ve noted, the Tom Miller-led effort has done no investigations, guaranteeing that the negotiators would have no bargaining power.
Mike Konczal says this:
If HUD can find that in two months how actively do other regulators have to be in not finding problems?…
The stalled 50-AG settlement should be put on hold until more is disclosed about what an actual investigation can get you. This finding by HUD should also tell skeptics that there is a there-there to these problems.
Three things are worth noting here. First, the HUD IG seems to have been able to conduct a much more thorough review of foreclosures than any of the bank regulators. The HUD IG’s office has a small staff. Compare this with the enormous examiner teams at the disposal of the OCC and Fed. Yet somehome the HUD IG has been able to accomplish a much more insightful review than the federal bank regulators. The clear implication here is that regulatory motivation matters in investigations….
Second, the all-clear sounded by the OCC and Fed on the servicing front just isn’t credible. This is a major problem for the US financial recovery…
Third, it’s worth noting that irrespective of whether DOJ pursues the HUD IG’s findings under the False Claims Act, HUD has a major disciplinary tool at its disposal: FHA lender eligibility.
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The whole financial crisis and mortgage mess are difficult for the public to understand. Most people can't even balance their checkbooks. Things they don't understand, they don't care about. Now, if you want to talk about a mom injecting, or pretended to have injected, her daughter with Botox...
#1 Posted by Tom, CJR on Fri 20 May 2011 at 10:01 AM
How Wall Street was able to play its game for so long?
Here is how: http://tinyurl.com/43mae3e
The "chosen ones" knew the game perfectly well, but they forgot one important piece - once Main Street got the facts straight, they will come asking for answers and you better have it ready!
As we all know and see, they have a majority of the media in their packets. However, we only need Nasiripour, Taibbi and the truth is already out! Now, we should all stand up together and demand justice!
#2 Posted by Senka, CJR on Fri 20 May 2011 at 10:19 AM
...how convenient! osama's newsworthiness wearing thin, obama proposes a ridiculous feud with the israelis to keep the media occupied...a rapture distraction with a timed ending...
...i suppose it's all in the timing...
by the time this stuff wears out, we'll have forgotten all about those bankers...
#3 Posted by riley, CJR on Fri 20 May 2011 at 10:27 AM
Everybody is overlooking the elephant in the room:
The bankers stole all your money in 1913.
Yes, they stole the "right" to coin (heh, technically the left you coins) money nearly 100 years ago and no one seems to have noticed! What right does a bank have to your mortgage at all? Isn't MONEY supposed to belong to the people? Taxpayers only pay taxes to feed bankers. Bend over.
There's your amazing scoop. Bankers stole all your money 100 years ago.
Americans aren't sheeple, they're scapegoats -- responsible for bank losses without any authority over the banks whatsoever. Private profit. Public debt.
#4 Posted by Steven G. Berry, CJR on Sat 21 May 2011 at 08:23 AM
This isn't "fraud" - at least not in the sense that there is any allegation of misrepresentation by the banks with regard to the amounts due to them in HUD claims.
What happened here is that these banks got sloppy in following the foreclosure rules and foreclosed on many homes without following the correct procedures. They then, as they should have done had they correctly followed procedures, filed claims with HUD for the deficiency balances.
It is unsurprising that HUD (the agency that pays these claims) is quick to cry "fraud" in an effort to avoid the claims.
While the banks didn't follow the rules, the fact remains that there is no net cost to taxpayers as a result of this misconduct - the mortgages on the foreclosed homes were indeed in default and HUD's guarantees were unquestionably in place. Thus, HUD was on the hook for the deficiency balances no matter what.
Indeed, if the banks had properly followed the rules, the result would have been a greater cost to HUD - since the real estate market has only further declined in the last two years, the deficiency balances (and thus the HUD claims due) after the foreclosure sales would be greater now than they were then.
Yeah, the banks broke the rules and I'm all for whacking them for it - it's important to straighten them out not as far as the cost to taxpayers is concerned, but instead as a guarantee of due process to protect property rights and to revive the real estate market....
But as far as any allegation of fraud goes with respect to HUD, there just isn't any. No harm, no foul.
#5 Posted by padikiller, CJR on Sat 21 May 2011 at 09:16 AM
@padikiller
Your below statement is incorrect:
"While the banks didn't follow the rules, the fact remains that there is no net cost to taxpayers as a result of this misconduct - the mortgages on the foreclosed homes were indeed in default and HUD's guarantees were unquestionably in place."
As a consumer, (1) have you ever applied for immigration benefts? (2) social security entitlements? (3) health care reimbursements from the state? (4) unemployment benefits? So what happens when you take short cuts, provide inaccurate information, take short cuts? YOUR CLAIM GETS REJECTED AND YOU WOULD BE PROSECUTED IF YOU SIGNED UNDER PENALTY OF PERJURY.
So how is the bank any different than Joe Blow getting prosecuted for taking a few short cuts to get a payday? Had Joe Blow done it right, he probably would've gotten the benefits anyway, but Joe Blow is lazy and makes a few "harmless" misleading statements but gets caught. Do you have any doubt that the government wouldn't lay the hammer on Joe Blow? It's about time they the Feds treated companies with the same heavy handedness they treat everyday people.
It still shocks me that Angelo Mozilo of Countrywide only had to pay $43 million from his $400 million to get off of any prosecution related to Countrywide's mortgage fraud investigation, but long distance runner Charlie Engle misstates his income by using last year's income instead of last month's income on a "liar loan" and gets... 2 years in prison.
http://www.wallstreetoasis.com/blog/someone-finally-jailed-for-mortgage-mess
So if a guy can get put in jail for what you describe as "being sloppy", why shouldn't the banks for doing the same?
#6 Posted by OCTrojan, CJR on Sat 21 May 2011 at 10:43 AM
@OCTrojan
As I wrote... I'm all over whacking the snot out of the banks. A lot houses were foreclosed without due process - I've seen at least two examples of this first-hand.
But the fact remains that the net liability to the taxpayers isn't really affected by this misconduct.
The loans on these houses were in fact delinquent. The deficiency claims were real, and uninflated. The defaults really did happen and the market really did collapse.
Had the banks done the paperwork right, the end result would have been the same - the claims were still payable, and the government was on the hook, no matter what.
Most of the problem foreclosures involved a lack of documentation of recorded deeds and the use of accurate, but uncertified copies instead- a "fake but accurate" technical violation of the regulations, but a violation that doesn't change the fact that the underlying mortgages were delinquent and subject to foreclosure.
I have seen no allegation of any widespread claim inflation or other actual fraud - the banks involved really did lose the money they claimed they did. I have seen no claims than any significant number of foreclosures were made on mortgages that weren't actually delinquent. Thus, the only question is whether the government should have to pay when the banks incurred actual losses on guaranteed loans, but didn't follow the correct process in collecting.
I don't really have a horse in the race - As a taxpayer, I'd like to say I'd rather see the banks eat the loans, but as a practical matter that won't happen - another bailout is always right around the corner. If I were a shareholder of one of the banks (which I'm not) I'd argue that the misconduct was a good-faith mistake and that the guarantor (the government) should stay on the hook for the deficiency. The banks clearly made a mistake and somebody's clearly going to pay for it. I guess the courts will settle it out.
However, there is no "fraud" here -at least there isn't any proof of any claim of a loss that wasn't actually sustained.
As for going to jail for being "sloppy", I suppose it depends on the intent of the actors.
If it turns out that somebody at the banks deliberately skirted the law with criminal intent, then yeah, jail is appropriate. If instead, somebody merely screwed up - thought they were doing it right, but got it wrong, then criminal charges won't fly.
But the intent doesn't really matter to us, practically speaking. It doesn't really matter to the guy who just lost his leg in a car crash if the driver of the car who hit him intended to cause the crash or did so accidentally. Either way the guy's out a leg.
Same's true here. Somebody screwed up the foreclosures and somebody's going to be held liable and then the little guys are going to pay for it (as they always do), whether or not any criminal activity was afoot.
#7 Posted by padikiller, CJR on Sat 21 May 2011 at 11:35 AM
padikiller: "This isn't "fraud" - at least not in the sense that there is any allegation of misrepresentation by the banks with regard to the amounts due to them in HUD claims."
Oh, really? That seems to be at odds with this from the article: "Some agencies involved in the talks are calling for the five banks to shell out as much as $30 billion, with even more costs to be incurred for improving their internal operations and modifying troubled borrowers’ home loans.
But even that number would fall short of legitimate compensation for the bank's harmful practices, reckons the nascent federal Bureau of Consumer Financial Protection. By taking shortcuts in processing troubled borrowers' home loans, the nation's five largest mortgage firms have directly saved themselves more than $20 billion since the housing crisis began in 2007, according to a confidential presentation prepared for state attorneys general by the agency and obtained by The Huffington Post in March."
Fail.
#8 Posted by TrevorM, CJR on Sun 22 May 2011 at 05:06 PM
LOL..
If ONLY it would cost a mere $30 billion improve the "internal operations" of any government agency....
No surprise that the government agencies are milking this misconduct for some budget-padding. That's what they do best.
But as I wrote - there is no allegation that any of these banks submitted claims for money that wasn't actually lost.
#9 Posted by padikiller, CJR on Sun 22 May 2011 at 11:37 PM
Putting your non-sequitir aside, you're still wrong.
You wrote: "But as I wrote - there is no allegation that any of these banks submitted claims for money that wasn't actually lost."
Again, from the original HuffPo scoop: "The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents."
So the banks filed claims using faulty documentation, making mistakes in a way that just-so-happened to net them 20$ billion. But you claim that was just a mistake. Smarter people see it for what it plainly was: fraud.
Here's some more damning evidence from the HuffPo: "Two of the firms, including Bank of America, refused to cooperate with the investigations, according to the sources. The audit on Bank of America finds that the company — the nation’s largest handler of home loans — failed to correct faulty foreclosure practices even after imposing a moratorium that lifted last October. Back then, the bank said it was resuming foreclosures, having satisfied itself that prior problems had been solved."
Commenting on that, Yves Smith: "This demonstrates that the banks have not cleaned up their bad practices despite promises to do so. And notice the “improper documents” issue got national attention, led several major servicers to halt foreclosures in multiple states and were put under the spotlight in a series of Congressional hearings. The banks piously claimed these were mere mistakes and they would fly straight. This exam shows them to have lied, pure and simple."
But everything was on up-and-up, right padikiller?
#10 Posted by TrevorM, CJR on Mon 23 May 2011 at 07:12 AM
padikiller: "While the banks didn't follow the rules, the fact remains that there is no net cost to taxpayers as a result of this misconduct "
Either padikiller didn't read the Huffpo article, or he is seriously missing the point.
To put it in terms that are simple to understand: the banks "sloppy" practices allowed them to originate many more loans that were doomed to failure than would otherwise have been possible. In fact, they were under financial pressure to originate as many loans as possible to people who simply could not afford them. This was not "sloppy", it was a concerted effort to increase their revenues by streamlining the origination process, sometimes illegally.
The Huffpro statement that one bank was "repeatedly lying to FHA in securing taxpayer-backed insurance for thousands of shoddy mortgages" is a direct counter to the claim that "there is no net cost to taxpayers as a result of this misconduct".
While we may never know the full extent of the taxpayer cost, it was clearly significant. The misconduct of the banks needs to be prosecuted to the full extent of the law, and deserves more media attention that it is getting.
#11 Posted by Rick Sullivan, CJR on Mon 23 May 2011 at 08:11 AM
A couple months ago I visited the 12th Judicial Circuit court house here in Sarasota and looked at WAMU foreclosures from January 2007 - February 2007. Nearly 100% featured some species of outright fraud or suspect paperwork. It could have been a now-known robo-signer, or a couple dates that don't make sense, or it could have been a filing by a known foreclosure mill who faithfully used the services of LPS and, with some investigating, would be found to be fraudulent. Once you know what you're looking for, the stuff just leaps off the page.
Listen, here in Florida the courts are nearly bankrupt just trying to wade through the foreclosures that are coming down the pike. The real fun will begin when we start to understand that hundreds of thousand of summary judgments were based on fraud on the court. What are we going to do about that? Are we going to say that it's OK to commit fraud on the court in amazing numbers and that this fraud can be made with no penalty? What would happen if you got a judgment against me and used fraudulent paperwork to get the judgment and the court found out? There are penalties. There would be sanctions. The judgment would be tossed. So, my question is: if things are bad now, what's going to happen when we have to address the previously committed fraud? If were are nearly bankrupt now, what's going to happen then???
The Florida Bar has opined that attorneys have an affirmative duty - PRE- and POST-judgment to notify the court of suspected fraudulent paperwork filed by their clients. I haven't seen a rush by the good people at Shapiro & Fishman, Marshall C. Watson, David J. Stern, Florida Default Law, etc., etc., to come clean. It seems no one has the balls any more to suck it up and do the right thing.
#12 Posted by Liz in Sarasota, CJR on Mon 23 May 2011 at 03:28 PM