Documents in JPMorgan settlement reveal how every large bank in U.S. has committed mortgage fraud | The Real News Network

This’ll be the first installment in what can we learn from the statement of facts that constitutes JPMorgan’s admissions. This in that settlement that the Department of Justice is billing as the $13 billion settlement. As I’ve explained in the past, it’s not that big, but it’s still quite large in dollar terms. And we owe a debt of gratitude to Judge Rakoff, who’s been giving the Securities and Exchange Commission a hard time about settling cases and getting absolutely no useful admissions from the people that perpetrated the frauds.

Source: The Real News Network

Advertisements

Oregon’s SB 1552 Analyzed – Mandatory Mediation Law (For Trust Deed Foreclosures) | Querin Law

By Phil Querin, Attorney

On March 5, 2012, the Oregon Legislature passed a sweeping series of changes to its trust deed foreclosure law, SB 1552.  Once signed by the Governor it will become effective 91 days hence.  What follows is a summary of (a) the new mandatory mediation law that, after the effective date, will apply to the non-judicial foreclosure of all residential trust deeds; and (b) some important changes to the existing laws governing judicial and non-judicial foreclosures.  Between now and the effective date, the Oregon Attorney General’s office will promulgate rules to implement the mediation program.  Until then, all we have for guidance is SB 1552 itself. This summary is for informational purposes only and should not be viewed as “legal advice”.  Those interested in seeing if the new law may apply to their particular situation should consult with their own legal counsel. Read more…

New York’s U.S. Bankruptcy Court Rules MERS’s Business Model Is Illegal | Huffington Post

By L Randall Wray

United States Bankruptcy Judge Robert Grossman has ruled that MERS’s business practices are unlawful. He explicitly acknowledged that this ruling sets a precedent that has far-reaching implications for half of the mortgages in this country. MERS is dead. The banks are in big trouble. And all foreclosures should be stopped immediately while the legislative branch comes up with a solution.

For some weeks I have been arguing that MERS is perpetrating foreclosure fraud all across the nation. Its business model makes it impossible to legally foreclose on any mortgaged property registered within its system — which includes half of the outstanding mortgages in the US. MERS was a fraud from day one, whose purpose was to evade property recording fees and to subvert five centuries of property law. Its chickens have come home to roost.

Wall Street wanted to transform America’s housing sector into the world’s biggest casino and needed to undermine property rights to make it easier to run the scam. The payoffs were bigger for lenders who could induce homeowners to take mortgages they could not possibly afford. The mortgages were packaged into securities sold-on to patsy investors who were defrauded by the “reps and warranties” falsely certifying the securities as backed by top grade loans. In fact the securities were not backed by mortgages, and in any case the mortgages were sure to go bad. Given that homeowners would default, the Wall Street banks that serviced the mortgages needed a foreclosure steamroller to quickly and cheaply throw families out of the homes so that they could be resold to serve as purported collateral for yet more gambling bets. MERS — the industry’s creation — stepped up to the plate to facilitate the fraud. The judge has ruled that its practices are illegal. MERS and the banks lose; investors and homeowners win.

Here’s MERS’s business model in brief. Real estate property sales and mortgages are supposed to be recorded in local recording offices, with fees paid. With the rise of securitization, each mortgage might be sold a dozen times before it came to rest as the collateral behind a mortgage backed security (MBS), and each of those sales would need to be recorded. MERS was created to bypass public recording; it would be listed in the county records as the “mortgagee of record” and the “nominee” of the holder of mortgage. Members of MERS could then transfer the mortgage from one to another without all the trouble of changing the local records, simply by (voluntarily) recording transactions on MERS’s registry.

A mortgage has two parts, the “note” and the “security” (not to be confused with the MBS) or “deed of trust” that is usually just called the “mortgage”. The idea behind MERS was that the “note” would be transferred from seller to purchaser, but the “mortgage” would be held by MERS. In fact, MERS recommended that the “note” be held by the mortgage servicer to facilitate foreclosures, but in practice it seems that the notes were often lost or destroyed (which is why all those Burger King Kids were hired to Robo-sign “lost note affidavits”).

At each transfer, the note and mortgage are supposed to be “assigned” to the new owner; MERS claimed that because it was the “mortgagee of record” and the “nominee” of both parties to every transaction, there was no need to assign the “mortgage” until foreclosure. And it argued that since the old adage is that the “mortgage follows the note” and that both parties intended to assign the notes (even if they did not get around to doing it), then the Bankruptcy Court should rule that the assignments did take place in some sort of “virtual reality” so that there is a clear chain of title that allows the servicers to foreclose.

The Judge rejected every aspect of MERS’s argument. The Court rejected the claim that MERS could be both holder of the mortgage as well as nominee of the “true” owner. It also found that “mortgagee of record” is a vague term that does not give one legal standing as mortgagee. Hence, at best, MERS is only a nominee. It rejected MERS’s claim that as nominee it can assign notes or mortgages — a nominee has limited rights and those most certainly do not include the right to transfer ownership unless there is specific written instruction to do so. In scarcely veiled anger, the Judge wrote:

“According to MERS, the principal/agent relationship among itself and its members is created by the MERS rules of membership and terms and conditions, as well as the Mortgage itself. However, none of the documents expressly creates an agency relationship or even mentions the word “agency.” MERS would have this Court cobble together the documents and draw inferences from the words contained in those documents.” Read more…

New York Sues 3 Big Banks Over Mortgage Database | Reuters

Attorney General Eric T. Schneiderman of New York sued three major banks on Friday, accusing them of fraud in their use of an electronic mortgage database that he said resulted in deceptive and illegal practices, including false documents in foreclosure proceedings.

Mr. Schneiderman, co-chairman of a new mortgage crisis unit under President Obama, filed a lawsuit against Bank of America, Wells Fargo and JPMorgan Chase in New York State Supreme Court in Brooklyn.

The database, called the Mortgage Electronic Registration System or MERS, was created in the mid-1990s for tracking mortgage ownership. It is a collaboration of top mortgage servicers, mortgage insurers and Fannie Mae and Freddie Mac, the government entities that hold many of the country’s mortgages.

“The mortgage industry created MERS to allow financial institutions to evade county recording fees, avoid the need to publicly record mortgage transfers and facilitate the rapid sale and securitization of mortgages en masse,” Mr. Schneiderman said.

“By creating this bizarre and complex end-around of the traditional public recording system,” Mr. Schneiderman’s lawsuit asserts, the banks saved $2 billion in recording fees.

More than 70 million mortgage loans, including millions of subprime loans, have been registered in the MERS system, rather than in local county clerks’ offices, according to the lawsuit.

The lawsuit asserts the database is inaccurate and seeks to stop the banks from filing foreclosure actions through MERS and executing false or defective mortgage assignments in New York foreclosure proceedings.

Mr. Schneiderman also is seeking all profits obtained through fraudulent and deceptive practices and other damages, including $5,000 for each violation of general business law.

Patrick Linehan, a JPMorgan spokesman, and Rick Simon, a Bank of America spokesman, declined to comment on the lawsuit. Ancel Martinez, a Wells Fargo spokesman, said the company was reviewing the lawsuit and did not have “anything to add at this time.” Janis L. Smith, a spokeswoman for Merscorp and its subsidiary, MERS, said in a statement that the firms complied with the law and mortgage regulations.

“Federal and state courts around the country have repeatedly upheld the MERS business model, and the validity of MERS as legal mortgagee and nominee for lenders,” the MERS statement said. “We refute the attorney general’s claims and will defend the case vigorously in court.”

Source: New York Times/Reuters

Criminal Charges Loom For Goldman Sachs After Scathing Senate Report | Forbes

By Halah Touryalai

A Senate panel released a damning report accusing the likes of Goldman Sachs of engaging in massive conflicts of interest, contaminating the U.S. financial system with toxic mortgages and undermining public trust in U.S. markets in the months leading up to the financial crisis.

Just when you thought Washington lawmakers were over that whole financial crisis thing, Senator Carl Levin, D-Mich., and Senator Tom Coburn M.D., R-Okla, blast Wall Street in a 635-page report stemming from a 2-year bipartisan investigation on the key causes of the crisis.

The report comes at a time when much of the feeling from lawmakers in Washington is that Wall Street is being over-regulated by the new Dodd-Frank rules.

The report from the Senate’s Permanent Subcommittee on Investigations however takes an opposite view by citing internal documents and private communications of bank executives, regulators, credit ratings agencies and investors to depict an industry that  was rife with conflicts of interest and reckless during the mortgage surge.

Senator Levin said in the release yesterday:

“Using emails, memos and other internal documents, this report tells the inside story of an economic assault that cost millions of Americans their jobs and homes, while wiping out investors, good businesses, and markets,” said Levin. “High risk lending, regulatory failures, inflated credit ratings, and Wall Street firms engaging in massive conflicts of interest, contaminated the U.S. financial system with toxic mortgages and undermined public trust in U.S. markets.  Using their own words in documents subpoenaed by the Subcommittee, the report discloses how financial firms deliberately took advantage of their clients and investors, how credit rating agencies assigned AAA ratings to high risk securities, and how regulators sat on their hands instead of reining in the unsafe and unsound practices all around them.  Rampant conflicts of interest are the threads that run through every chapter of this sordid story.”

The report takes specific issue with the way Goldman Sachs touted investments to clients on one end but bet against them on the other. A similar accusation against Goldman by the SEC lead to a $550 settlement last year, but Levin and his team don’t think that punishment fits the crime. From the report:

When Goldman Sachs realized the mortgage market was in decline, it took actions to profit from that decline at the expense of its clients.  New documents detail how, in 2007, Goldman’s Structured Products Group twice amassed and profited from large net short positions in mortgage related securities.  At the same time the firm was betting against the mortgage market as a whole, Goldman assembled and aggressively marketed to its clients poor quality CDOs that it actively bet against by taking large short positions in those transactions.

New documents and information detail how Goldman recommended four CDOs, Hudson, Anderson, Timberwolf, and Abacus, to its clients without fully disclosing key information about those products, Goldman’s own market views, or its adverse economic interests.  For example, in Hudson, Goldman told investors that its interests were “aligned” with theirs when, in fact, Goldman held 100% of the short side of the CDO and had adverse interests to the investors, and described Hudson’s assets were “sourced from the Street,” when in fact, Goldman had selected and priced the assets without any third party involvement.

New documents also reveal that, at one point in May 2007, Goldman Sachs unsuccessfully tried to execute a “short squeeze” in the mortgage market so that Goldman could scoop up short positions at artificially depressed prices and profit as the mortgage market declined.

This isn’t the first time Levin is gunning for Goldman. Back in April 2010, the Senator had a memorable back-and-forth with a Goldman executive during a testimony where the two discussed a “shitty deal” the firm was selling to clients.

In fact, Levin is referred to that very testimony yesterday saying he doesn’t think Goldman executives were being truthful about its activity, and that he would refer the testimony to the Department of Justice and the Securities and Exchange Commission for possible criminal investigations.

“In my judgment, Goldman clearly misled their clients and they misled the Congress,” he said.

Goldman isn’t alone in feeling Levin’s wrath though. The report also points to Deutsche Bank AG (DB) saying the Frankfurt-based company created a $1.1 billion CDO with assets that its traders referred to as “crap” and “pigs” but then attempted to sell “before the market falls off a cliff.”

Not even credit rating agencies are spared in this report which concluded that “the most immediate cause of the financial crisis was the July 2007 mass ratings downgrades by Moody’s and Standard & Poor’s that exposed the risky nature of mortgage-related investments that, just months before, the same firms had deemed to be as safe as Treasury bills.”

Here’s more:

Internal emails show that credit rating agency personnel knew their ratings would not “hold” and delayed imposing tougher ratings criteria to “massage the … numbers to preserve market share.”  Even after they finally adjusted their risk models to reflect the higher risk mortgages being issued, the firms often failed to apply the revised models to existing securities, and helped investment banks rush risky investments to market before tougher rating criteria took effect.

They also continued to pull in lucrative fees of up to $135,000 to rate a mortgage backed security and up to $750,000 to rate a collateralized debt obligation (CDO) – fees that might have been lost if they angered issuers by providing lower ratings.  The mass rating downgrades they finally initiated were not an effort to come clean, but were necessitated by skyrocketing mortgage delinquencies and securities plummeting in value.  In the end, over 90% of the AAA ratings given to mortgage-backed securities in 2006 and 2007 were downgraded to junk status, including 75 out of 75 AAA-rated Long Beach securities issued in 2006.

When sound credit ratings conflicted with collecting profitable fees, credit rating agencies chose the fees.

Among the 19 recommendations from the panel on how to handle the problems is one suggestion that asks the SEC to rank credit rating agencies according to the accuracy of their ratings.

At this stage, do we think the SEC can handle that?

Source:  Forbes

Report: Big Profits Drove Faulty Ratings at Moody’s, S&P | McClatchy Newspapers

By Kevin G. Hall

Analysts who reviewed complex mortgage bonds that ultimately collapsed and ruined the U.S. housing market were threatened with firing if they lost lucrative business, prompting faulty ratings on trillions of dollars worth of junk mortgage bonds, a Senate report said Wednesday.The 639-page report by the Senate Permanent Subcommittee on Investigations confirms much of what McClatchy first reported about mismanagement by credit ratings agencies in 2009.

Credit rating agencies are supposed to provide independent assessments on the quality of debt being issued by companies or governments. Traditionally, investments rated AAA had a probability of failure of less than 1 percent.

But in collusion with Wall Street investment banks, the Senate report concludes, the top two ratings agencies — Moody’s Investors Service and Standard & Poor’s — effectively cashed in on the housing boom by ignoring mounting evidence of problems in the housing market.

“Instead of using this information to temper their ratings, the firms continued to issue a high volume of investment-grade ratings for mortgage backed securities,” the report said.

Profits at both companies soared, with revenues at market leader Moody’s more than tripling in five years. Then the bottom fell out of the housing market, and Moody’s stock lost 70 percent of its value; it has yet to fully recover. More than 90 percent of AAA ratings given in 2006 and 2007 to pools of mortgage-backed securities were downgraded to junk status.

Wednesday’s report provided greater detail about the behavior of Brian Clarkson, the president of Moody’s at the time of his departure in mid-2008, when the financial crisis was in full bloom.

Clarkson rose from the head of Structured Finance, which rated complex bonds backed by U.S. mortgages, to president of the company. His rise paralleled the decline in ratings quality. He has refused to talk to McClatchy or other news organizations, and was scheduled to testify last year before the Financial Crisis Inquiry Commission but was rushed to the hospital with a kidney stone.

Analysts had confided to McClatchy that Clarkson bullied and threatened them as he rose up the ranks, and the Senate report details that in numerous emails. One email dating to 2003 shows Clarkson suggesting the need to “refine our approach” to keep pace with competitors “easing their standards to capture (market) share.”

Similarly, an S&P employee in an August 2006 email described his company’s cozy relationship with Wall Street banks this way: “They’ve become so beholden to their top issuers for revenue they have all developed a kind of Stockholm syndrome…”

Stockholm syndrome is the bond a kidnapping victim feels with captors.

Source:  McClatchy Newspapers