The Audit

Economic Crisis, The Audit — June 30, 2011 10:32 AM

Bank of America’s Disastrous Countrywide Deal

The “dumb” money squandered tens of billions of dollars on Angelo Mozilo’s predatory lender

By Ryan Chittum

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AND, Just how much money in salery, bonuses and stock did stupid CEO Ken Lewis make????

Is there some way to make him give it back?

#1 Posted by chuck, CJR on Thu 30 Jun 2011 at 10:53 AM

How did any homeowners lose any money?

"I didn't pay my mortgage and it's all somebody else's fault" makes for a good commie/liberal press... But where can it be shown that any homeowner actually lost any money because of Countrywide?

The people who lost money here are the investors who lent money to people who didn't pay their mortgages.

#2 Posted by padikiller, CJR on Thu 30 Jun 2011 at 11:11 AM

Alex Ulam had a great piece a while back in The Nation about the "$8.4 billion" settlement:

http://www.thenation.com/article/155380/bank-america-mortgage-settlement-fiasco

#3 Posted by Michael Hudson, CJR on Thu 30 Jun 2011 at 11:19 AM

Padi, the homeowners who lost money are precisely the ones who did pay their mortgages, jacked-up with unreasonable fees and monster interest rates, and usually on a principle balance that is quite beyond the value of the house.

The only home owners who made money on these deals are the flippers and scammers who walked away--your American success stories. Read Mike Hudson's book.

#4 Posted by Edward Ericson Jr., CJR on Thu 30 Jun 2011 at 02:42 PM

So the homeowners who applied for mortgages and voluntarily signed contracts are "victims" of what, exactly?... "Jacked-up" and "unreasonable" fees?

How do we get here, precisely? Did somebody put a gun to the homeowner's heads to get them to sign mortgage contracts?

Hardly.

Sorry dude... A little personal responsibility goes a long way. Lessons to be learned for investors and borrowers alike. Sometimes people lose money. Life isn't always fair. The government doesn't owe you a house. Read a contract and understand it before you sign it.. Etc.. etc.. etc..

#5 Posted by padikiller, CJR on Thu 30 Jun 2011 at 06:36 PM

"A little personal responsibility goes a long way. "

Good advice, for the banks.

They made bad loans, often fraudulent loans, lost the paper work, submitted false paper work, and lobbied for the regulatory changes that allowed them to grow as overleveraged as they did.

Being forced to reissue good, non exploitive mortgages to the people they've defrauded would be a good way of teaching the banks a lesson. Not to mention it would resolve much of the foreclosure crisis, turn non-performing-loans into performing ones, and would slow the glut of properties depressing house values across the country.

Sanctioning the idiot banks would be good for the market, the home owners, and the banks.

But don't worry padi. No one will do anything that sensible because the commie socialist democrats are bought by the same lobbies and the TEA PARTY doesn't want to pay LOSERS mortgages.

Tripe like "personal responsibility" stops in front of the big marble doorways of finance.

#6 Posted by Thimbles, CJR on Thu 30 Jun 2011 at 07:33 PM

" the homeowners who lost money are precisely the ones who did pay their mortgages, jacked-up with unreasonable fees and monster interest rates, and usually on a principle balance that is quite beyond the value of the house."

This is just pure, unadulterated fantasy. What "monster" interest rates or "unreasonable fees" were there? If the principle balance was beyond the value of he house then they should not have bought the house.

#7 Posted by JLD, CJR on Thu 30 Jun 2011 at 08:15 PM

The principle was based on the inflated values of the house which were a result of bankers pushing bad loans so they could book bonuses and securitize them.

And in subprime, the majority of the loans were adjustable rate mortgages who's rates exploded after a period of time and which cost a lot to refinance. The refinancing was a big part of Countrywide's business model. The file is thick here guys:

http://www.nytimes.com/2007/08/26/business/yourmoney/26country.html

http://online.wsj.com/article/SB119662974358911035.html

This is all old news you should know by now.

#8 Posted by Thimbles, CJR on Thu 30 Jun 2011 at 09:45 PM

JLD wrote: If the principle balance was beyond the value of he house then they should not have bought the house

padikiller replies: And if they couldn't afford to make higher payments, they shouldn't have signed adjustable mortgage contracts...

There's just a cognitive disconnect on the left that defies rational analysis - Either a dishonest stubborn refusal or an honest acute mental disability - That refuses to acknowledge the reality that nobody put a gun to anyone's head to force them to sign up for mortgages that they couldn't afford.

#9 Posted by padikiller, CJR on Thu 30 Jun 2011 at 10:06 PM

Don't know why I bother, but here goes:

Padi: read Hudson's book. He has been reporting on the financial services industry for more than 20 years. He has interviewed hundreds of people, "victims" (so-called) of "predatory lending" (so-called) and the guys who closed the loans.

The guys who worked for Countrywide, and a dozen other places just like it.

They are the ones who explained how the system works.

No, they did not put a gun to anyone's head.

They did put in front of people fixed rate loans, got their signatures on those, and then switched the key documents with adjustable rate loans with twice the interest rate to start. Then they forged the customers' signatures on those loans.

They did this, and several tricks like it, all day, every day. It was a business model. And they were caught. We know this happened because it is in affidavits and exhibits in dozens of lawsuits in many states. It is all documented, in excruciating detail, in Michael Hudson's book.

And, again, the perps explained it. They did it because they were pressured to do so, by their bosses, their boss's bosses. When they succeeded they got to snort cocaine with hookers in Vegas and go in a booth full of blowing money. When they failed they got canned.

You know, the capitalist way.

Except it wasn't the capitalist way, because fraud was the business model. Still is, from what I can see.

#10 Posted by edward ericson jr., CJR on Thu 30 Jun 2011 at 10:33 PM

Now whoa there, Edward...

I'm all for putting the fraudsters in jail..

If it really happened, that is...

But remember, there are affidavits about Bigfoot, about UFO's, about Slick Willy's marital fidelity... Etc...

If there is actual proof of forgery or fraud, I'd love to see it.

But I seriously doubt it. This is always the way with liberals... "Go read this book" (usually written by some daft commie/liberal) to get all the answers!...

And then when you get to the story, all you get are nameless and baseless accusations and innuendo.

So why don't we cut to the quick, Ed, since you've read the book? WHO did this? WHEN did it happen? WHERE did it happen? Names.. Addresses... Dates... You know, some of those fact-thingies...

Give us the actual names of three actual people who actually forged actual mortgage applications...

Just three actual examples of actual people who actually did what you claim they did, OK? You do this, and I'll join you in the lynch mob!

Until then... Pardon my underwhelment...

#11 Posted by padikiller, CJR on Thu 30 Jun 2011 at 11:59 PM

"You do this, and I'll join you in the lynch mob!"

Sure you will, just like you did on global warming, all you need is evidence - as you define evidence - and you'll convert.

The big fraud in this thread is you, sweetie.

Ps. Did you read about the countrywide story above in which Eliot spitzer was nailing the company right and left for predatory lending and fraud? Not evidence, I guess.

#12 Posted by Thimbles, CJR on Fri 1 Jul 2011 at 12:17 AM

Typical republican. "You can't prove there was fraud unless you find evidence, so I'm going to work my ass off to prevent you from looking. Because anything less would be BIG GOVERNMENT."

http://thinkprogress.org/economy/2011/06/29/256563/darell-issa-goldman-sachs/

#13 Posted by Thimbles, CJR on Fri 1 Jul 2011 at 04:52 AM

Fraud is one thing... Stupidity is another..

Victims of fraud are entitled to relief, of course. You don't need to sell me on this notion - I'd whack the snot out of anyone who forged or altered contracts.

On the other hand, people who were just stupid -people with bad credit or low incomes who signed up for adjustable rate mortgages on $600,000 townhouses - these people need to suffer the consequences of their own stupidity, for their own good and for the greater good of society.

But you liberals don't like hearing my all too reasonable position.

You want to paint the subprime crisis as a widespread fraud, when in fact it was actually widespread stupidity. Isolated incidents of fraud (assuming one of you can actually point to some) do not make a vast Wall Street conspiracy.

The vast, vast majority of the homeowners who lost money due to the subprime crisis did so according to the terms of the written mortgages they voluntarily signed. This is just the reality here.

#14 Posted by padikiller, CJR on Fri 1 Jul 2011 at 08:15 AM

Travis Paules

#15 Posted by Edward Ericson Jr., CJR on Fri 1 Jul 2011 at 10:47 AM

Interesting story involving BoA having problems with their foreclosures.

http://www.sacbee.com/2011/07/01/3740515/wrongful-home-foreclosures-rare.html

"Each year, more than 500,000 foreclosures are filed in California. The volume has overwhelmed back-office operations and loan workout teams. BofA and other lenders likely will have to pay billions of dollars to settle an investigation by states attorneys general into "robo-signing," the practice of rubber-stamping foreclosures without actually reviewing homeowners' loan documents.

Prompted by regulatory investigations and congressional hearings, lenders say they've taken steps to clean up their practices. But consumer advocates say mistakes still regularly occur.

Earlier this year, the nonprofit California Reinvestment Coalition surveyed 55 foreclosure counselors around the state. Ninety-four percent said they had worked with clients who lost homes even though they had worked out a loan modification with a lender or were in the process of finalizing one.

Applying for a loan modification does not stop the foreclosure process. Instead, lenders have set up a two-track system in which one arm of the company may be working with a distressed customer to modify the loan while another is trying to foreclose.

Lack of communication has resulted in instances where homeowners who had already reached an agreement to modify a loan found that their homes had been auctioned off.

That's what happened to Joseph Lopez last year.

Lopez, 46, who lives in Oak Park, lost his job when the economy went south four years ago. In April 2010, lender JPMorgan Chase Bank filed a foreclosure action against him.

Lopez, who owed the bank about $85,000, said he reached a one-time deal with the lender within days of the foreclosure filing that would have allowed him make his loan current.

Despite the agreement, Lopez said, Chase sold his home two months later to mortgage lending giant Fannie Mae.
"This has aged me; this has destroyed me," he said."

Two issues I have with the article 1) a headline like that should be substantiated with more than the words of an industry rep:

"Dustin Hobbs, communications director for the California Mortgage Bankers Association, said instances of wrongful foreclosure are rare."

2) it'd be nice to know what the lending history behind some of these badly documented houses was. Were they subprime? Did they come from Countrywide?

#16 Posted by Thimbles, CJR on Sun 3 Jul 2011 at 11:05 AM

An interesting contrast:

http://www.nytimes.com/2011/07/03/business/03loans.html

"Two of the nation’s biggest lenders, JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk.

Rula Giosmas is one of the beneficiaries. Last year she received a letter from Chase saying it was cutting in half the amount she owed on her condominium.

Ms. Giosmas, who lives in Miami, was not in default on her $300,000 loan. She did not understand why she would receive this gift — although she wasted no time in taking it.

Banks are proactively overhauling loans for borrowers like Ms. Giosmas who have so-called pay option adjustable rate mortgages, which were popular in the wild late stages of the housing boom but which banks now view as potentially troublesome.

Before Chase shaved $150,000 off her mortgage, Ms. Giosmas owed much more on her place than it was worth. It was a fate she shared with a quarter of all homeowners with mortgages across the nation. Being underwater, as it is called, can prevent these owners from moving and taking new jobs, and places the households at greater risk of foreclosure.

“It’s a huge problem,” said the economist Sam Khater. “Reducing negative equity would spark a housing recovery.”"

Reducing the principle? Without even being asked? Why would they do that?

"Option ARM loans like Ms. Giosmas’s gave borrowers the option of skipping the principal payment and some of the interest payment for an introductory period of several years. The unpaid balances would be added to the body of the loan.

Bank of America and Chase inherited their portfolios of option ARMs when they bought troubled lenders during the housing crash."

Oh, no money up front and deferred interest payments mean that the borrower had no skin in the worthless house. As a borrower, why not walk?

So the banks gets nice and helpful:

"“By proactively contacting pay option ARM customers and discussing other products with better options for long-term, affordable payments, we hope to prevent customers from reaching a point where they struggle to make their payments,” Mr. Frahm said."

But that help is for folks who had no skin in the house. If you were a responsible borrower who put money down:

"The banks say cutting mortgage balances would be unfair to borrowers who remain current as well as impractical because so many loans are securitized into pools owned by investors. Bank of America’s chief executive, Brian T. Moynihan, told the attorneys general in April that cutting principal for current borrowers would send the wrong message to all those who have struggled to pay their bills. His counterpart at Chase, Jamie Dimon, bluntly said it was “off the table.”"

So what is the solution for these pesky option arms which are working against the banks because a) they exposed the bank to borrowers with nothing to lose
b) they exposed banks to losses during periods of prolonged low interest rates.

"The letter, which Ms. Giosmas remembers as brief and “totally vague,” said Chase was cutting her principal by $150,000 while raising her interest rate to about 5 percent. Her payments would stay roughly the same.

A few months ago, Ms. Giosmas sold the place for $170,000, making a small profit. Having a loan that her lender considered toxic, she said, “turned out to be a blessing in disguise.”"

So the nightmare dual loan modification/foreclosure process subprime borrowers are getting isn't inherent to the limitations of the bank, it's a consequence of the product they got having less of an downside for the bank.

They will negotiate and offer options to borrowers unsolicited if they aren't getting the returns they want or the ris

#17 Posted by Thimbles, CJR on Mon 4 Jul 2011 at 11:18 PM

"A few months ago, Ms. Giosmas sold the place for $170,000"

making a small profit. Having a loan that her lender considered toxic, she said, “turned out to be a blessing in disguise.”"

(Rassfafrasin letter limit) So the nightmare dual loan modification/foreclosure process subprime borrowers are getting isn't inherent to the limitations of the bank, it's a consequence of the product they got having less of an downside for the bank.

They will negotiate and offer options to borrowers unsolicited if they aren't getting the returns they want or the risk they want as is. But people who are trapped in subprime and are seeking principle modification or any help whatsoever? They get HAMPed.

More option arm details here.

http://www.bloomberg.com/news/2011-02-15/option-arm-time-bomb-blows-early-limiting-damage-to-u-s-housing-market.html

#18 Posted by Thimbles, CJR on Tue 5 Jul 2011 at 12:18 AM

Scenario

John Smith, the CEO of ABC Company is employed with a package of a multimillion dollar salary, stock options and numerous perks. He is charged with the responsibility of increasing the profitability of the ABC Company.

Mr. Smith is greedy as he wants to make more money as well for himself. He devises a plan to make a huge profit for his company. He purchases another company and incorporates it into the ABC Company The plan he devises works for a few years and everyone is happy then several years later, Mr. Smith's plan starts to backfire and the ABC Company begins to have huge losses.

Question: Who is responsible for the lack of Mr. Smith's unethical behavior as it effects the ABC Company?

1. Is Mr. Smith responsible?
2. Is the ABC company responsible?
3. Or should John Q. Public be responsible? Ding, Ding, Ding

Let's suppose this same John Smith is the CEO of Bank of America and he sees a way to increase the bank's bottom line. John Smith purchases Country Wide Home Loans/Mortgage to increase profitability for Bank of America and in the bargain increases his own bottom line. Bank of America experiences huge profits then the unthinkable happens. The mortgage industry falls apart as Bank of America/Countrywide knowingly issued many bad loans based on the instant gratification of huge profits. Once again, who is responsible for Mr. Smith's poor business decision?

1. Is Mr. Smith responsible?
2. Is the ABC company responsible?
3. Or should John Q. Public be responsible? Ding, Ding, Ding

This is exactly what happened to the homeowner that lives next door to a Bank of America foreclosed property. The homeowner has watched in horror as Bank of America has failed to maintained these foreclosed homes, have witnessed criminal activity enter their neighborhood due to foreclosed homes, and have seen damage to their property due to the encroachment of unmaintained foreclosed properties. The homeowner has seen his/her property value plummet as Bank of America continues to rape the marketplace and project the ways of their errors upon the unsuspecting property owner next door to the latest foreclosure all in the name of corporate greed. Bank of America made huge profits from their deceptive behavior and we as homeowners should not be responsible for their loss. We need a remedy for this outrageous behavior. Bank of America should not be allowed to profit at another's loss.

#19 Posted by cathy , CJR on Sat 24 Mar 2012 at 02:08 PM

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